A Manufacturer of Video Games Develops a New Game Over

question 93

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

---

Definitions:

Artificially Scarce Good

A good that is excludable but nonrival in consumption.

Pay-Per-View

A type of television or internet broadcasting service by which a user pays to view a specific television program or event.

Artificially Scarce

A situation where the supply of a good is limited by factors other than its physical scarcity, often due to regulatory or monopolistic practices.

Excludable

Referring to a good, describes the case in which the supplier can prevent those who do not pay from consuming the good.