Use the Information for the Question(s)below

question 41

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:

Groupthink

A phenomenon that occurs within a group of people, where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Implicit Attitudes

Unconscious beliefs or feelings towards people, objects, or concepts that influence one's responses independently of conscious control.

Just-World Phenomenon

The tendency for people to believe the world is just and that people therefore get what they deserve and deserve what they get.

Mirror-Image Perceptions

Mutual views often held by conflicting people, as when each side sees itself as ethical and peaceful and views the other side as evil and aggressive.