Should the film maker make the investment

Reference no: EM13268342

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

Reference no: EM13268342

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