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 $660,000 2 330,000 660,000 3 330,000 660,000 4 330,000 660,000 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 4.212 3.791 3.605 3.352 2.991 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 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 $1,002,210, while the TV station requires an investment of $1,884,300. No residual value is expected from either project.
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 $660,000 2 330,000 660,000 3 330,000 660,000 4 330,000 660,000 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 4.212 3.791 3.605 3.352 2.991 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 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 $1,002,210, while the TV station requires an investment of $1,884,300. No residual value is expected from either project.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![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
$660,000
2
330,000
660,000
3
330,000
660,000
4
330,000
660,000
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
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
4.917
4.355
4.111
3.784
3.326
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 $1,002,210, while the TV station requires an investment of $1,884,300. No residual value is expected from either project.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F55634b06-3761-44f9-96d8-94382929b89c%2F3ix6eto_processed.png&w=3840&q=75)
Transcribed Image Text: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
$660,000
2
330,000
660,000
3
330,000
660,000
4
330,000
660,000
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
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
4.917
4.355
4.111
3.784
3.326
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 $1,002,210, while the TV station requires an investment of $1,884,300. 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
$4
Less amount to be invested
$
Net present value
$4
$
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
%
%
3. The net present value, present value index, and internal rate of return all indicate that the
is a better financial opportunity compared to the
although both investments meet
the minimum return criterion of 10%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F55634b06-3761-44f9-96d8-94382929b89c%2Fmm3d19c_processed.png&w=3840&q=75)
Transcribed Image Text: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
$4
Less amount to be invested
$
Net present value
$4
$
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
%
%
3. The net present value, present value index, and internal rate of return all indicate that the
is a better financial opportunity compared to the
although both investments meet
the minimum return criterion of 10%.
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