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 DVD, but not both. Consider the following cash flows of the two mutually exclusive projects. Assume the discount rate for both projects is 12 percent.

Year	Board Game			DVD
0	–$	1,200		–$	2,700
1		690			1,750
2		950			1,570
3		210			800

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. 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Incremental IRR             %

Answer 1

Year	Board Game	Cumlative cash Flow
0	-1,200	-1,200
1	690	-510
2	950	440
3	210	650
Paybackperiod =510/950+1		1.54
Year	DVD	Cumlative cash Flow
0	-2,700	-2,700
1	1,750	-950
2	1,570	620
3	800	1,420
Paybackperiod =950/1570+1		1.61

	Payback period
Board Game	1.54
DVD	1.61

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.)

Year	Board Game	PV factor 12%	PV
0	-1,200	1.0000	-1,200.00
1	690	0.8929	616.07
2	950	0.7972	757.33
3	210	0.7118	149.47
			322.88

Year	DVD	PV factor 12%	PV
0	-2,700	1.0000	-2,700.00
1	1,750	0.8929	1,562.50
2	1,570	0.7972	1,251.59
3	800	0.7118	569.42
NPV			683.52

	NPV
Board Game	322.88
DVD	683.52

IRR

Year	Board Game	DVD
0	-1,200	-2,700
1	690	1,750
2	950	1,570
3	210	800
IRR	29.24%	28.20%

IRR using RR Excel Funtion

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

Year	Board Game	DVD	Incremental Cash Flow
0	-1,200	-2,700	-1,500
1	690	1,750	1,060
2	950	1,570	620
3	210	800	590
IRR	29.24%	28.20%	27%

Incremental IRR =27.37%