Chapter 15, Problem 15.4.1P

To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

  $NPV= Presentvalueofcashinflows–Presentvalueofcashoutflows$

To Calculate:

The Net Present Value for each project

Answer to Problem 15.4.1P

The Net Present value for each project for each project is as follows:

	Net Present Value
Radio Station	$ 176,325
TV Station	$ 148,809

Explanation of Solution

The Net Present value for each project is calculated as follows:

Radio Station	Amount	PVF (10%)	PV
	A	B	=A*B
Annual Net Cash Flows
Year 1	$ 560,000	0.90909	$ 509,091
Year 2	$ 560,000	0.82645	$ 462,810
Year 3	$ 560,000	0.75131	$ 420,736
Year 4	$ 560,000	0.68301	$ 382,488
Present Value of Cash Inflow (A)			$ 1,775,125
Investment (B)	$ 1,598,800	1.00000	$ 1,598,800
Net Present Value (A-B)			$ 176,325
TV Station	Amount	PVF (20%)	PV
	A	B	=A*B
Annual Net Cash Flows
Year 1	$ 1,120,000	0.90909	$ 1,018,182
Year 2	$ 1,120,000	0.82645	$ 925,620
Year 3	$ 1,120,000	0.75131	$ 841,473
Year 4	$ 1,120,000	0.68301	$ 764,975
Present Value of Cash Inflow (A)			$ 3,550,249
Investment (B)	$ 3,401,440	1.00000	$ 3,401,440
Net Present Value (A-B)			$ 148,809

To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

  $NPV= Presentvalueofcashinflows–Presentvalueofcashoutflows$

To Calculate:

The Present Value Index for each project

Answer to Problem 15.4.1P

The Present Value Index for each project is as follows:

	Present Value Index
Radio Station	1.11
TV Station	1.04

Explanation of Solution

The Present Value Index for each project is calculated as follows:

Radio Station	Amount	PVF (10%)	PV
	A	B	=A*B
Annual Net Cash Flows
Year 1	$ 560,000	0.90909	$ 509,091
Year 2	$ 560,000	0.82645	$ 462,810
Year 3	$ 560,000	0.75131	$ 420,736
Year 4	$ 560,000	0.68301	$ 382,488
Present Value of Cash Inflow (A)			$ 1,775,125
Investment (B)	$ 1,598,800	1.00000	$ 1,598,800
Present Value Index (A/B)			1.11
TV Station	Amount	PVF (20%)	PV
	A	B	=A*B
Annual Net Cash Flows
Year 1	$ 1,120,000	0.90909	$ 1,018,182
Year 2	$ 1,120,000	0.82645	$ 925,620
Year 3	$ 1,120,000	0.75131	$ 841,473
Year 4	$ 1,120,000	0.68301	$ 764,975
Present Value of Cash Inflow (A)			$ 3,550,249
Investment (B)	$ 3,401,440	1.00000	$ 3,401,440
Present Value Index (A/B)			1.04