Question

Mario brothers ltd 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 mario brothers. Assume that discount rate for mario brothers ltd is 10%

Which project should be chosen and what is the additional value mario brothers will create by choosing this project (the chosen one) over the other? The decision is to be taken at time t=0, The cah flow projections and innitial investment values are provided in the table

Year	Board Game (Cash Flow $)	DVD (Cash Flow $)
0	-900	-1700
1	550	1300
2	450	900
3	100	300

Answer 1

NPV is calculated using NPV function in Excel.

The project which higher NPV should be chosen as it creates more value.

As the DVD project has a higher NPV, the DVD project should be chosen.

By choosing this project, additional value created = $451.01 - $47.03 = $403.98