A Manufacturer of Video Games Develops a New Game Over

question 33

Multiple Choice

A manufacturer of video games develops a new game over two years. This costs $850,000 per year with one payment made immediately and the other at the end of two years. When the game is released, it is expected to make $1.2 million per year for three years after that. What is the net present value (NPV) of this decision if the cost of capital is 9%?

• A) $991,220
• B) $1,071,432
• C) $1,841,093
• D) $1,564,559

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Definitions:

Net Assets

The difference between total assets and total liabilities, representing the owner's or shareholders' equity in a company.

Cost

The amount of money required to purchase something or the expense associated with creating a product or service.

Selling Price

The amount of money for which a product is sold to the consumer.