Should the film maker make the investment

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Reference no: EM131622834

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 with complete certainty. 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%. Without issuing 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

E) None of the above

Reference no: EM131622834

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