Question

Net Present Value Method, Internal Rate of Return Method, and Analysis The management of Quest Media...

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 $350,000 $740,000
2 350,000 740,000
3 350,000 740,000
4 350,000 740,000
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 $999,250, while the TV station requires an investment of $1,915,860. 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 $ $
Less 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
Radio Station
TV Station

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
Internal rate of return % %

Homework Answers

Answer #1

1 a)

RADIO STATION

TV STATION

  1. PRESENT VALUE OF NET CASH FLOWS

=350000*3.170

=$ 1109500

=740000*3.170

=$ 2345800

  1. AMOUNT INVESTED

$ 999250

$ 1915860

NET PRESENT VALUE (1-2)

$ 110250

$ 429940

1 b) PRESENT VALUE INDEX = PRESENT VALUE OF NET CASH FLOWS / INITIAL INVESTMENT

PRESENT VALUE INDEX

RADIO STATION

1.11

TV STATION

1.22

2

RADIO STATION

TV STATION

PV FACTOR FOR AN ANNUITY OF $ 1

2.855

2.589

INTERNAL RATE OF RETURN

15%

20%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Net Present Value Method, Internal Rate of Return Method, and Analysis The management of Quest Media...
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 $320,000 $610,000 2 320,000 610,000 3 320,000 610,000 4 320,000 610,000 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...
Net Present Value Method, Internal Rate of Return Method, and Analysis The management of Quest Media...
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 $290,000 $580,000 2 290,000 580,000 3 290,000 580,000 4 290,000 580,000 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...
The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash...
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 $200,000 $360,000 2 200,000 360,000 3 200,000 360,000 4 200,000 360,000 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...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $390,000 $700,000 2 390,000 700,000 3 390,000 700,000 4 390,000 700,000 The wind turbines require an investment of $1,113,450, while the biofuel equipment requires an investment of $1,812,300. No residual value is expected from either...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The...
Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Year Wind Turbines Biofuel Equipment 1 $340,000 $710,000 2 340,000 710,000 3 340,000 710,000 4 340,000 710,000 The wind turbines require an investment of $970,700, while the biofuel equipment requires an investment of $2,156,270. No residual value is expected from either...
Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare...
Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare Corp. is proposing to spend $228,160 on a 10-year project that has estimated net cash flows of $31,000 for each of the 10 years. 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...
Net Present Value Method and Internal Rate of Return Method for a service company Buckeye Healthcare...
Net Present Value Method and Internal Rate of Return Method for a service company Buckeye Healthcare Corp. is proposing to spend $79,611 on a five-year project that has estimated net cash flows of $21,000 for each of the five years. 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...
Net Present Value Method and Internal Rate of Return Method Buckeye Healthcare Corp. is proposing to...
Net Present Value Method and Internal Rate of Return Method Buckeye Healthcare Corp. is proposing to spend $93,150 on an eight-year project that has estimated net cash flows of $15,000 for each of the eight years. 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...
Internal Rate of Return Method The internal rate of return method is used by King Bros....
Internal Rate of Return Method The internal rate of return method is used by King Bros. Construction Co. in analyzing a capital expenditure proposal that involves an investment of $80,620 and annual net cash flows of $20,000 for each of the nine years of its useful life. 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...
Net Present Value Method and Internal Rate of Return Method for a Service Company Buckeye Healthcare...
Net Present Value Method and Internal Rate of Return Method for a Service Company Buckeye Healthcare Corp. is proposing to spend $186,725 on an eight-year project that has estimated net cash flows of $35,000 for each of the eight years. 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...