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	$260,000		$520,000
2	260,000		520,000
3	260,000		520,000
4	260,000		520,000

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
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
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

The radio station requires an investment of $742,300, while the TV station requires an investment of $1,346,280. No residual value is expected from either project.

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 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
Less amount to be invested	$fill in the blank 3	$fill in the blank 4
Net present value	$fill in the blank 5	$fill in the blank 6

1b. 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	%

3. The net present value, present value index, and internal rate of return all indicate that the

radio stationtv station

is a better financial opportunity compared to the

radio stationtv station

, although both investments meet the minimum return criterion of 10%.