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 8 percent.

  

Year	Board Game			DVD
0	–$	1,750		–$	3,800
1		800			2,300
2		1,500			1,680
3		320			1,350

  

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

a. Payback Period

Board Game = 1 Year + 950 / 1500 = 1.63 Years

DVD = 1 Year + 1500 / 1680 = 1.89 Years

b. NPV & IRR

NPV
Board game	$530.78
DVD	$ 841.63

c. IRR

IRR
Board game	25.57%
DVD	21.19%

d. Incremental IRR = 17.22%