Comparing Investment Criteria Software games company Avalanche Entertainment is considering expanding its highly successful online game franchise
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Comparing Investment Criteria Software games company Avalanche Entertainment is considering expanding its highly successful online game franchise to the board game or trading card environment. The company has decided that it will invest in one project but not both. Consider the following cash flows of the two mutually exclusive projects. Assume the discount rate for Avalanche Entertainment is 10 per cent.
Year Trading Cards (€) Board Game (€)
0 –200 –2,000 1 300 2,200 2 100 900 3 100 500
(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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