Use the Information for the Question(s)below

question 114

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.What is the net present value (NPV) of this project if the film maker does not issue the new security? What is the net present value (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
• E)$5.0 million; $5.0 million

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Definitions:

Need for Social Power

The desire to have influence or control over others in social settings or interpersonal relationships.

Successful Executive

Refers to a high-ranking corporate officer who effectively leads, manages, and makes strategic decisions that contribute to the organization's success.

Need for Personal Power

The desire to influence or control the behavior of others, stemming from personal goals or interests.

Exploitative

Actions or practices that unfairly take advantage of others, often for personal or organizational gain.