4. Wil Brothers, a game manufacturer, has a new idea for an adventure game. It c
ID: 2618560 • Letter: 4
Question
4. Wil Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a tradtional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mufually exclusive projects for the company. Assume the discount rate is 10 percent o1,100 $2.500 670 1,650 800 190 1,370 700% 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.) Board game DVD 2.21 years 3 03 years 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.) NPV Board game DVD 313 S658.15 c. What is the IRR for each project? (Do not round intermiediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g-32.16.) Board game DVD 28 17196 26 7:96 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.) incremental IRR 25 O Type here to search A:Explanation / Answer
Requirement (a) – Payback Period
Board Game
Year
Cash Flows
Cumulative net Cash flow
0
-1100
-1100
1
670
-430
2
800
370
3
190
560
Payback Period=Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year )
= 1 Year + (430 / 800)
= 1 Years + 0.54
= 1.54 Years
DVD
Year
Cash Flows
Cumulative net Cash flow
0
-2500
-2500
1
1650
-850
2
1370
520
3
700
1220
Payback Period=Years before full recover + (Unrecovered cash inflow at start of the year/cash flow during the year )
= 1 Year + (850/1370)
= 1 Years + 0.62
= 1.62 Years
Requirement (b) – Net Present value
Board Game
Net Present Value = [670 x 0.909090909] + [800 x 0.826446281] + [ 190 x 0.751314801] – 1,100
= $1,413 – 1,100
= $313
DVD
Net Present Value = [1650 x 0.909090909] + [1370 x 0.826446281] + [700x0.751314801] – 2,500
= $ 3,158.15 -2,500
= $658.15
Requirement (c) – Internal Rate of Return [IRR]
Board Game = 28.17%
DVD = 26.7%
Year
Cash Flows
Cumulative net Cash flow
0
-1100
-1100
1
670
-430
2
800
370
3
190
560
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