Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 14QP
Comparing Investment Criteria 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 for both projects is 10 percent.
| Year | Board Game | DVD |
| 0 | –$950 | –$2.100 |
| 1 | 700 | 1,500 |
| 2 | 550 | 1,050 |
| 3 | 130 | 450 |
- a. Based on the payback period rule, which project should be chosen?
- b. Based on the
NPV , which project should be chosen? - c. Based on the JRR, which project should be chosen?
- d. Based on the incremental
IRR , which project should be chosen?
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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
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Year Board Game
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1
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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.)
a. Board game
a. DVD
b.…
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 12 percent.
Year Board Game DVD
O
-$1,450
$3,200
1
740
2,000
2
1,200
1,620
3
260
1,050
a. What is the payback period for each project? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
b. What is the NPV for each project? (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)
c. What is the IRR for each project? (Do not round intermediate calculations and enter
your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
d. What is the incremental IRR? (Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.
Board game
years
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years
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Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for the company. Assume the discount rate is 8 percent.
Year
Board Game
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0
–$
1,000
–$
2,300
1
650
1,550
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700
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3
170
600
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…
Chapter 5 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - International Investment Projects In March 2014,...Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQCh. 5 - Prob. 8CQCh. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...
Ch. 5 - Net Present Value You are evaluating Project A and...Ch. 5 - Modified Internal Rate of Return One of the less...Ch. 5 - Net Present Value It is sometimes stated that the...Ch. 5 - Prob. 14CQCh. 5 - Calculating Payback Period and NPV Maxwell...Ch. 5 - Calculating Payback An investment project provides...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Calculating Discounted Payback An investment...Ch. 5 - Prob. 5QPCh. 5 - Calculating IRR Compute the internal rate of...Ch. 5 - Calculating Profitability Index Bill plans to open...Ch. 5 - Calculating Profitability Index Suppose the...Ch. 5 - Cash Flow Intuition A project has an initial cost...Ch. 5 - Prob. 10QPCh. 5 - NPV versus IRR Consider the following cash flows...Ch. 5 - Problems with Profitability Index The Coris...Ch. 5 - Prob. 13QPCh. 5 - Comparing Investment Criteria Wii Brothers, a game...Ch. 5 - Profitability Index versus NPV Hanmi Group, a...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Comparing Investment Criteria The treasurer of...Ch. 5 - Comparing Investment Criteria Consider the...Ch. 5 - Prob. 19QPCh. 5 - NPV and Multiple IRRs You are evaluating a project...Ch. 5 - Payback and NPV An investment under consideration...Ch. 5 - Multiple IRRs This problem is useful for testing...Ch. 5 - NPV Valuation The Yurdone Corporation wants to set...Ch. 5 - Calculating IRR The Utah Mining Corporation is set...Ch. 5 - Prob. 25QPCh. 5 - Calculating IRR Consider two streams of cash...Ch. 5 - Calculating Incremental Cash Flows Darin Clay, the...Ch. 5 - Prob. 28QPCh. 5 - Prob. 1MCCh. 5 - Seth Bullock, the owner of Bullock Gold Mining, is...
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Profitability index; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Md5ocNqKHq8;License: Standard Youtube License