Mario Brothers, a game manufacturer, has a new idea for an adventure game. It ca
ID: 2740993 • Letter: M
Question
Mario 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 Mario Brothers. Assume the discount rate for Mario Brothers is 11 percent.
What is the payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What is the IRR for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What is the incremental IRR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Mario 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 Mario Brothers. Assume the discount rate for Mario Brothers is 11 percent.
Explanation / Answer
Year' Cash flows Cummulative CF 1 780 780.000 2 1400 2180.000 3 300 2480.000 Payback Period = 1year+(1650-780)/1400 1.621 Year' Cash flows Cummulative CF 1 2200 2200.000 2 1660 3860.000 3 1250 5110.000 Payback Period = 1year+(3600-2200)/1660 1.84 Year' Cash flows PVF @ 11% PV 0 -1650 1 -1650.00 1 780 0.901 702.70 2 1400 0.812 1136.27 3 300 0.731 219.36 NPV 408.33 Year' Cash flows PVF @ 10% PV 0 -3600 1 -3600.00 1 2200 0.901 1981.98 2 1660 0.812 1347.29 3 1250 0.731 913.99 NPV 643.26 Year' Cash flows 0 -1650 1 780 2 1400 3 300 IRR = 26.04% Year' Cash flows 0 -3600 1 2200 2 1660 3 1250 IRR = 22.14% Year' Cash flows Cash flows Difference 0 -1650 -3600 -1950 1 780 2200 1420 2 1400 1660 260 3 300 1250 950 Incremental IRR = 18.66%
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