A Manufacturer of Video Games Develops a New Game Over

question 117

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.The net present value (NPV) of this investment at a cost of capital of 9% indicates that this is a worthwhile investment.By how much would the cost of capital have to increase for the NPV to be zero?

• A)7%
• B)9%
• C)12%
• D)16%
• E)19%

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Definitions:

Psychosexual Development

Freud's theory that childhood stages of development (oral, anal, phallic, latency, genital) affect an individual's adult personality.

Superego

Part of the Freudian psychoanalytic theory, representing the ethical component of personality that provides the moral standards by which the ego operates.

Ego

In psychoanalytic theory, the part of the personality that mediates between the demands of the id, superego, and reality.

Phallic

Pertains to the third stage in Freud's psychosexual development theory, focusing on the pleasure center around the genital area during the ages of 3 to 6 years.