Question

Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for the company. Assume the discount rate is 11 percent.

  

Year	Board Game			DVD
0	–$	1,400		–$	3,100
1		730			1,950
2		1,150			1,610
3		250			1,000

  

a.	What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	Payback period
Board game	years
DVD	years

    

b.	What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	NPV
Board game	$
DVD	$

  

c.	What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

	IRR
Board game	%
DVD	%

    

d.	What is the incremental IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Incremental IRR

%

  

Answer 1

C YEAR Board game cash flows cumulative cash flows -$1,400.00 -$1,400.00 $730.00 - $670.00 $1,150.00 $480.00 $250.00 $730.00 27.53% NPV IRR(B3:36) payback: pv @ 11% 1.0000 0.9009 0.8116 0.7312 discounted cash flows -$1,400.00 $657.66 $933.37 $182.80 $373.82 years 1.58 1+(670/1150) YEAR cash flows -$3,100.00 $1,950.00 $1,610.00 $1,000.00 25.06% IRR(B13:B16) DVD cumulative cash flows -$3,100.00 -$1,150.00 $460.00 $1,460.00 NPV pv @ 11% 1.0000 0.9009 0.8116 0.7312 discounted cash flows -$3,100.00 $1,756.76 $1,306.71 $731.19 $694.66 IRR payback: 1.71 Tyears 1+(1150/1610)

Board game DVD 1.58 1.71 RO Board game DVD $373.82 $694.66 Board game DVD 27.53% 25.06%

Difference in cash flows Board game Cash flows $1,400 $730 $1,150 DVD Cash flows $3,100 $1,950 $1,610 $1,000 $1,700 $1,220 -$460 -$750 22.95% IRR(D3:06) $250 Incremental IRR