Question

Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can either market the game as a traditional board game or as an interactive smart-phone application, but not both. Consider the following cash flows of the two mutually exclusive projects for Mario Brothers. Assume the discount rate for the project is 10 percent.

Year Board Game Smart-phone App -$320,000 -$550,000 $240,000 $310,000 $130,000 $280,000 $75,000 $195,000

A) Based on the IRR, which project should be chosen?

B Based on the MIRR, which project should be chosen?

Which would your choose?

Answer 1

Year Board game 0$ 1 $ 2$ 3$ IRR MIRR Year Board game |-320000 Smart-phone app (320,000.00) $ (550,000.00) 240,000.00 $ 130,000.00 $ 75,000.00 $ 310,000.00 280,000.00 195,000.00 23.34% 21.95% 16.69% 16.88% Smart-phone app |-550000 310000 280000 |195000 0 1 240000 130000 2 75000 3 IRR (B2: B5) IRR MIRR MIRR(B2:B5,10%, 10% )=MIRR(C2:C5,10 %,10%) |=IRR(C2:C5)

Based on IRR, the first project

Based on MIRR, second project