Problem:
A manufacturer of video games develops a new game. The development costs are $850,000 immediately and another $850,000 at the end of two years. When the game is released, it is expected to make $1.2 million per year for years 3, 4, and 5.
Required:
Question: What is the net present value (NPV) of this decision if the cost of capital is 9%?
- $991,220
- $1,071,432
- $1,564,559
- $1,841,093
Note: Please provide through step by step calculations.