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A manufacturer of video games develops a new game over two years. This costs $820,000 per...
A manufacturer of video games develops a new game over two years. This costs $820,000 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 $1.00 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%?
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Expert Solution
Ans $ 557563.63
| Year | Project Cash Flows (i) | DF@ 10% | DF@ 10% (ii) | PV of Project ( (i) * (ii) ) |
| 0 | -820000 | 1 | 1 | (8,20,000.00) |
| 1 | 0 | 1/((1+10%)^1) | 0.909091 | - |
| 2 | -820000 | 1/((1+10%)^2) | 0.826446 | (6,77,685.95) |
| 3 | 1000000 | 1/((1+10%)^3) | 0.751315 | 7,51,314.80 |
| 4 | 1000000 | 1/((1+10%)^4) | 0.683013 | 6,83,013.46 |
| 5 | 1000000 | 1/((1+10%)^5) | 0.620921 | 6,20,921.32 |
| NPV | 5,57,563.63 |
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