The management of Style Networks Inc. is considering two TV show projects. The estimated net cash flows

Question:

The management of Style Networks Inc. is considering two TV show projects. The estimated net cash flows from each project are as follows:

After Hours requires an investment of $913,600, while Sun Fun requires an investment of $880,730. 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 (Exhibit 5).
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 (Exhibit 5).
3. What advantage does the internal rate of return method have over the net present value method in comparing projects?

Exhibit 5:

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Accounting

ISBN: 978-1285743615

26th edition

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

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