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

jeff jeffy answered 1 year ago

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