the management of quest media inc is considering two capital investment projects 491694
The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:
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|
Year |
Radio Station |
TV Station |
|
1 |
350,000 |
700,000 |
|
2 |
350,000 |
700,000 |
|
3 |
350,000 |
700,000 |
|
4 |
350,000 |
700,000 |
The radio station requires an investment of $999,250,while the TV station requires an investment of $2,125,900.No residual value is expected from either project.
Instructions
1. Compute the following for each project:
a. The net present value. Use a rate of 10% and the present value of an annuity of $1 table appearing in this chapter.
b. A present value index. Round to two decimal places.
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 table appearing in this chapter.
3. What advantage does the internal rate of return method have over the net present value method in comparing projects?
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