1 2 Net Present Value Method, Internal Rate of Return Method, and Analysis 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 $320,000 $290,000 320,000 290,000 3 320,000 290,000 320,000 290,000 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. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 4 1 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 8 9 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Required: 1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the above table. If required, round to the nearest dollar. After Hours Sun Fun Present value of annual net cash flows Amount to be invested Net present value 1b. Compute a present value index for each project. If required, round your answers to two decimal places. Present Value Index After Hours Sun Fun 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 above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest percent. After Hours Sun Fun Present value factor for an annuity of $1 Internal rate of return % % 3. The net present value, present value index, and internal rate of return all indicate that the TV show is a better financial opportunity