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The NPV of a New Video Game,Dexa 1,is -1

Question 3

Multiple Choice

The NPV of a new video game,Dexa 1,is -1.5M after discounting all expected cash flows.However,if high demand in the market evolves,Dexa 2 is a possible follow-on opportunity in two years.In two years it will cost 10M to start Dexa 2,which will produce 9M of cash flow in year 2.N(d1) = 0.5785 and N(d2) = 0.1755.The annual interest rate is 11% and equals the risk-free rate.What is the Dexa 1 APV?


A) $1.95 M
B) $1.30 M
C) $2.28 M
D) $2.80 M

Correct Answer:

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