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Question: Mario Brothers, a game manufacturer, has a

Mario Brothers, 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 the discount rate for Mario Brothers is 10 percent.
Mario Brothers, 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 the discount rate for Mario Brothers is 10 percent.


a. Based on the payback period rule, which project should be chosen?
b. Based on the NPV, which project should be chosen?
c. Based on the IRR, which project should be chosen?
d. Based on the incremental IRR, which project should be chosen?
a. Based on the payback period rule, which project should be chosen? b. Based on the NPV, which project should be chosen? c. Based on the IRR, which project should be chosen? d. Based on the incremental IRR, which project should be chosen?





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Year Board Game DVD -$750 -$1,800 600 1,300 2 450 850 3 120 350



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> What is the equation for the present value of a growing perpetuity with a payment of C one period from today if the payments grow by C each period?

> You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 31 annual payments of $250,000, with the first payment being delivered today. Th

> Audrey Sanborn has just arranged to purchase a $550,000 vacation home in the Bahamas with a 20 percent down payment. The mortgage has a 6.1 percent stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 yea

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> You want to lease a set of golf clubs from Pings Ltd. The lease contract is in the form of 24 equal monthly payments at a 10.4 percent stated annual interest rate, compounded monthly. Because the clubs cost $2,300 retail, Pings wants the PV of the lease

> Find the APR, or stated rate, in each of the following cases: Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) Semiannually 9.8% Monthly 19.6 Weekly 8.3 Infinite 14.2

> Locate the Treasury bond in Figure 8.4 maturing in November 2039. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread? Figure 8.4 |Treasury Notes & Bonds Asked Maturity 2013 May 3

> You want to buy a new sports car from Muscle Motors for $73,000. The contract is in the form of a 60-month annuity due at a 6.45 percent APR. What will your monthly payment be?

> Suppose you are going to receive $20,000 per year for five years. The appropriate interest rate is 7 percent. a. What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an an

> A 5-year annuity of ten $5,300 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 12 percent compounded monthly, what is the value of this annuity five years from now? What is the va

> A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 7 percent interest per week. a. What APR must the store report to its customers? What is the EAR that the customers are actuall

> Sparkling Water, Inc., expects to sell 2.8 million bottles of drinking water each year in perpetuity. This year each bottle will sell for $1.25 in real terms and will cost $.90 in real terms. Sales income and costs occur at year-end. Revenues will rise a

> Happy Times currently has an all-cash credit policy. It is considering making a change in the credit policy by going to terms of net 30 days. Based on the following information, what do you recommend? The required return is .95 percent per month. Cur

> Hughes Co. is growing quickly. Dividends are expected to grow at a rate of 20 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 12 percent and the company just paid a $2.80 di

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> Locate the Treasury bond in Figure 8.4 maturing in February 2037. What is its coupon rate? What is its bid price? What was the previous day’s asked price?

> Hanmi Group, a consumer electronics conglomerate, is reviewing its annual budget in wireless technology. It is considering investments in three different technologies to develop wireless communication devices. Consider the following cash flows of the thr

> Find the EAR in each of the following cases: Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 7% Quarterly 16 Monthly Daily 12 Infinite

> The Le Bleu Company has a ratio of long-term debt to total assets of .35 and a current ratio of 1.25. Current liabilities are $950, sales are $5,780, profit margin is 9.4 percent, and ROE is 18.2 percent. What is the amount of the firm’s net fixed assets

> Which of the following should be treated as an incremental cash flow when computing the NPV of an investment? a. A reduction in the sales of a company’s other products caused by the investment. b. An expenditure on plant and equipment that has not yet be

> You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 2.40 percent per year, compounded monthly for the first six months, increasing thereafter to 18 percent compounded monthly. Assuming you transfer the

> Schwert Corp. shows the following information on its 2012 income statement: sales = $185,000; costs = $98,000; other expenses = $6,700; depreciation expense = $16,500; interest expense = $9,000; taxes = $19,180; dividends = $9,500. In addition, you’re to

> Lakonishok Equipment has an investment opportunity in Europe. The project costs €19 million and is expected to produce cash flows of €3.6 million in Year 1,€4.1 million in Year 2, and €5.1 million in Year 3. The current spot exchange rate is $1.09/€ and

> Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual after tax cash flow by $390,000 indefinitely. The current m

> The Harrington Corporation is considering a change in its cash-only policy. The new terms would be net one period. Based on the following information, determine if Harrington should proceed or not. The required return is 2.5 percent per period. Curre

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> Why it that municipal bonds are not is taxed at the federal level, but are taxable across state lines? Why it is that U.S. Treasury bonds are not taxable at the state level?

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> FFDP Corp. has yearly sales of $28 million and costs of $12 million. The company’s balance sheet shows debt of $54 million and cash of $18 million. There are 950,000 shares outstanding and the industry EV/EBITDA multiple is 7.5. What is the company’s ent

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