Use the Information for the Question(s)below

question 88

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%.
-Refer to the information above.Assuming that the film maker issues the new security,the net present value (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
• E)$5.0 million; Yes

---

Definitions:

Random Error

Variability in measurement or data that arises from unpredictable fluctuations during the data collection process.

Selection Bias

A type of error that occurs when the sample is not representative of the population being studied, potentially leading to skewed results.

Observational Studies

Research methods where subjects are observed in their natural environment without any manipulation by the researcher.

Behavior of Chimpanzees

The range of activities and behaviors exhibited by chimpanzees, reflecting their complex social structures, communication methods, and intelligence.