The Builder of a New Movie Theatre Complex Is Trying

question 17

Multiple Choice

The builder of a new movie theatre complex is trying to decide how many screens she wants.Below are her estimates of the number of patrons the complex will attract each year,depending on the number of screens available:
After paying the movie distributor and meeting all other non-interest expenses,the owner expects to net $2.00 per ticket sold.Construction costs are $1,000,000 per screen.How many screens should be built if the real interest rate is 7%?

• A) 1.
• B) 2.
• C) 3.
• D) 4.
• E) 5.

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Definitions:

Stock Price

The cost of purchasing a share of a company, which fluctuates based on market conditions, demand, and other economic factors.

Time To Expiration

The period that remains before a contract, such as an option or futures contract, reaches its maturity date and is either exercised or expires worthless.

Intrinsic Value

Intrinsic value is the perceived or calculated true value of an asset, investment, or company, based on underlying perceptions of its true worth rather than current market value or price.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.