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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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