Question

Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can either market the game as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects. Assume the discount rate for both projects is 12 percent.

Year	Board Game			DVD
0	–$	1,200		–$	2,700
1		690			1,750
2		950			1,570
3		210			800

Answer 1

Statement showing Cash flows			Project A		Project B
Particulars	Time	PVf 12%	Amount	PV
Cash Outflows	-	1.00	(1,200.00)	(1,200.00)	(2,700.00)	(2,700.00)
PV of Cash outflows = PVCO				(1,200.00)		(2,700.00)
Cash inflows	1.00	0.8929	690.00	616.07	1,750.00	1,562.50
Cash inflows	2.00	0.7972	950.00	757.33	1,570.00	1,251.59
Cash inflows	3.00	0.7118	210.00	149.47	800.00	569.42
PV of Cash Inflows =PVCI				1,522.88		3,383.52
NPV= PVCI - PVCO				322.88		683.52