Net Present Value Method, Internal Rate of Return Method, and Analysis

The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:

Year Radio Station TV Station

$1$ $$330,000$ $$690,000$

$2330,000690,000$

$3330,000690,000$

$4330,000690,000$

Present Value of an Annuity of $$1$ at Compound Interest

Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$21\mathrm{.}8331\mathrm{.}7361\mathrm{.}6901\mathrm{.}6261\mathrm{.}528$

$32\mathrm{.}6732\mathrm{.}4872\mathrm{.}4022\mathrm{.}2832\mathrm{.}106$

$43\mathrm{.}4653\mathrm{.}1703\mathrm{.}0372\mathrm{.}8552\mathrm{.}589$

$54\mathrm{.}2123\mathrm{.}7913\mathrm{.}6053\mathrm{.}3522\mathrm{.}991$

$64\mathrm{.}9174\mathrm{.}3554\mathrm{.}1113\mathrm{.}7843\mathrm{.}326$

$75\mathrm{.}5824\mathrm{.}8684\mathrm{.}5644\mathrm{.}1603\mathrm{.}605$

$86\mathrm{.}2105\mathrm{.}3354\mathrm{.}9684\mathrm{.}4873\mathrm{.}837$

$96\mathrm{.}8025\mathrm{.}7595\mathrm{.}3284\mathrm{.}7724\mathrm{.}031$

$107\mathrm{.}3606\mathrm{.}1455\mathrm{.}6505\mathrm{.}0194\mathrm{.}192$

The radio station requires an investment of $$854,370,$ while the TV station requires an investment of $$1,969,950.$ No residual value is expected from either project.

Required:

$1$a$.$ Compute the net present value for each project. Use a rate of $10\%$ and the present value of an annuity of $$1$ in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.

Radio Station TV Station

Present value of annual net cash flows $fill in the blank $1$

$fill in the blank $2$

$2,205,300$

Less amount to be invested $fill in the blank $3$

$854,370$

$fill in the blank $4$

$1,969,950$

Net present value $fill in the blank $5$

$fill in the blank $6$

$1$b$.$ Compute a present value index for each project. If required, round your answers to two decimal places.

Present Value Index

Radio Station fill in the blank $7$

TV Station fill in the blank $8$

$2.$ 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$ in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent.

Radio Station TV Station

Present value factor for an annuity of $$1$ fill in the blank $9$

fill in the blank $10$

Internal rate of return fill in the blank $11$

$\%$ fill in the blank $12$

$\%$