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 9 percent.

  

Year	Board Game			DVD
0	–$	800		–$	1,900
1		610			1,350
2		500			950
3		130			400

  

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

	Board Game	DVD
Payback	1.38	1.578947
NPV	280.86	447.00
IRR	32.62%	24.69%
Incremental IRR	18.99%

WORKINGS

Year	Board Game	Cumulative CF		DVD	Cumulative CF		Incremental CF
0	-800	-800		-1900	-1900		-1100
1	610	-190		1350	-550		740
2	500	310		950	400		450
3	130	440		400	800		270