Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game as a traditional board game or as an interactive CD-ROM, 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 9 percent.
Year Board Game CD-ROM
0 –$ 1,300 –$ 2,900
1 710 1,850
2 1,050 1,590
3 230 900
a. What is the payback period for each project?
b. What is the NPV for each project?
c. What is the IRR for each project?
d. What is the incremental IRR?