Use the Information for the Question(s)below

question 48

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%.
-What is the NPV of this project if the film maker invests his own money and does not issue the new security? What is the NPV if the film maker issues the new security?

• A)$1.7 million;$1.7 million
• B)$1.7 million;$2.7 million
• C)$2.7 million;$1.7 million
• D)$2.7 million;$2.7 million

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Definitions:

Normal Distributed

A statistical distribution where observations are equally distributed around the mean, creating a bell-shaped curve.

Significance Level

The threshold below which a p-value is considered statistically significant, typically set at 0.05 or 5%.

Random Sample

A selection made from a group where each individual has the same probability of being chosen.

Confidence Interval

A confidence interval is a range of values, derived from statistical analysis, that is likely to contain the value of an unknown population parameter.