Net present value method, internal rate of return method, and analysis OBJ. 3 for a service company The management of Style Networks Inc. is considering two TV show projects. The estimated net cash flows from each project are as follows:

Year After Hours Sun Fun 1 $320,000 $290,000 2 320,000 290,000 3 320,000 290,000 4 320,000 290,000 After Hours requires an investment of $913,600, while Sun Fun requires an investment of $880,730. No residual value is expected from either project.

Instructions 1. Compute the following for each project:

a. The net present value. Use a rate of 10% and the present value of an annuity of

$1 table appearing in this chapter (Exhibit 5).

b. A present value index. Round to two decimal places.

2. Determine the internal rate of return for each project by

(a) computing a present value factor for an annuity of $1 and

(b) using the present value of an annuity of $1 table appearing in this chapter (Exhibit 5).

3. What advantage does the internal rate of return method have over the net present value method in comparing projects?