The NPV of a new video game, Dexa 1, is ?1.5 million 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 10 million to start Dexa 2, which will produce 9 million of cash flow in year 2. N(d1) = 0.5785 and N(d2) = 0.1755. The annual interest rate is 11 percent and equals the risk-free rate. What is the Dexa 1 APV?
A. $1.95 million
B. $1.30 million
C. $2.80 million
D. $2.28 million
Answer: B
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