Question

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	$420,000		$880,000
2	420,000		880,000
3	420,000		880,000
4	420,000		880,000

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 $1,199,100, while the TV station requires an investment of $2,278,320. 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		%		%

Answer 1

1a
	Radio Station	TV Station
Present value of annual net cash flows	1331400	2789600
Less amount to be invested	1199100	2278320
Net present value	132300	511280
b
	Present Value Index
Radio Station	1.11	=1331400/1199100
TV Station	1.22	=2789600/2278320
2
	Radio Station	TV Station
Present value factor for an annuity of $1	2.855	2.589
Internal rate of return	15%	20%
Formulas used:
	Radio Station	TV Station
Present value of annual net cash flows	=420000*3.170	=880000*3.170
	Radio Station	TV Station
Present value factor for an annuity of $1	=1199100/420000	=2278320/880000