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 –$ 1,650 –$ 3,600 1 780 2,200 2 1,400 1,660 3 300 1,250 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.) 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.) 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.) 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.)

Answer 1

a) Payback period of board game is 1.62 and Payback period of DVD us 1.64

b) NPV of board game is $ 408.33 and NPV of DVD is $ 643.28

c) IRR of board game is 25.52% and IRR of DVD is 22.12%.

d) Incremental IRR is 18.63%.