Question

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	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 $880,730, while the TV station requires an investment of $1,655,900. 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

(please post steps to get the answers, it would be greatly appreciated)

Answer 1

Answer:- 1a)- The net present value of Radio station is $38570

The net present value of TV Station is $182700

Explanation:-

Net present value of Radio station = Present value of cash inflows – Total outflows

     ={($290000*3.170) - $880730}

     =$919300 - $880730

     = $38570

Net present value of TV station = Present value of cash inflows – Total outflows

     ={($580000*3.170) - $1655900}

     =$1838600 - $1655900

     = $182700

1b)- Present value index=Present value of future cash flows/Initial Investment required

Radio station =$919300/$880730 =1.04

TV station =$1838600/$1655900=1.11