Use the Information for the Question(s) Below

question 34

Multiple Choice

Use the information for the question(s) below.
An independent film maker is considering producing a new movie. The initial cost for making this movie will be $20 million today. Once the movie is completed, in one year, the movie will be sold to a major studio for $25 million. Rather than paying for the $20 million investment entirely using its own cash, the film maker is considering raising additional funds by issuing a security that will pay investors $11 million in one year. Suppose the risk-free rate of interest is 10%.
-Assuming that the film maker issues the new security,the npv for this project is closest to what amount? Should the film maker make the investment?

• A) $1.7 million; Yes
• B) $1.7 million; No
• C) $2.7 million; Yes
• D) $2.7 million; No

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Definitions:

Indirect Costs

are expenses not directly tied to a specific product or service production but necessary for the organization's overall operations, such as utilities or administration salaries.

Hard Costs

Direct, tangible expenses associated with the execution of a project, such as materials and labor costs.

Expenditures

The act of spending or disbursing money, particularly in relation to business or government expenses.

Benchmarking

The practice of comparing business processes and performance metrics to industry bests or best practices from other companies to improve performance.