Question
In: Finance
A manufacturer of video games develops a new game over two years. This costs $ 810,000...
A manufacturer of video games develops a new game over two
years. This costs
$ 810,000 per year with one payment made immediately and the other
at the end of two years. When the game is? released, it is expected
to make $ 1.50 million per year for three years after that. What is
the net present value? (NPV) of this decision if the cost of
capital is
10%?
Solutions
Expert Solution
when the game is developed for 2 years, the firat inflow will come at the third year
| rate | 10.0000% | ||
| Cash flows | Year | Discounted CF= cash flows/(1+rate)^year | Cumulative cash flow |
| (810,000.00) | 0 | (810,000.00) | (810,000.00) |
| - | 1 | - | (810,000.00) |
| (810,000.000) | 2 | (669,421.49) | (1,479,421.49) |
| 1,500,000.000 | 3 | 1,126,972.20 | (352,449.29) |
| 1,500,000.000 | 4 | 1,024,520.18 | 672,070.90 |
| 1,500,000.000 | 5 | 931,381.98 | 1,603,452.88 |
NPV = 1,603,452.88
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