2. A toy company has developed a new game, which they will either put out...
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2. A toy company has developed a new game, which they will either put out as either a board game or a video game (but not both). The firms cost of capital is 10%. The expected cashflows from the 2 options are as follows:
Year Board Game Video Game
0 -320,000 -550,000
1 240,000 310,000
2 130,000 280,000
3 75,000 195,000
A. Calculate the IRR for each project. Based on the IRR, which project should be chosen and why?
B. Calculate the incremental IRR. Based on the incremental IRR, which project should be chosen and why?
C. If the cashflow for the video game is only $140,000 in year 3, recalculate the incremental IRR. Based on the incremental IRR, which project should be chosen and why?
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