Reference no: EM132481982
Net Present Value (NPV)
- Wild Horse Corporation is considering a major expansion that will cost SAR 22,000,000.
- Annual cash flows from the project are expected to be SAR 4,950,000 for 6 years.
- The firm uses a discount rate of 8%.
Question 1: Calculate the Net Present Value (NPV) of the project.
Profitability Index (PI)
- Wild Horse Corporation is considering a major expansion that will cost SAR 22,000,000.
- Annual cash flows from the project are expected to be SAR 4,950,000 for 6 years.
- The firm uses a discount rate of 8%.
Question 2: Calculate the Profitablility Index (PI) of the project. (Round to 2 decimal places.)
Internal Rate of Return (IRR)
- Wild Horse Corporation is considering a major expansion that will cost SAR 22,000,000.
- Annual cash flows from the project are expected to be SAR 4,950,000 for 6 years.
- The firm uses a discount rate of 8%.
Question 3: Calculate the Internal Rate of Return (IRR) of the project. (Round to 2 decimal places.)
Payback
- Wild Horse Corporation is considering a major expansion that will cost SAR 22,000,000.
- Annual cash flows from the project are expected to be SAR 4,950,000 for 6 years.
- The firm uses a discount rate of 8%.
Question 4: Calculate the Payback Period for the project. (Round to 2 decimal places.)
NPV, PI, IRR and Payback
Question 4: Recalculate (a) NPV, (b) PI, (c) IRR and (d) Payback for the facts above using a discount rate of 12%.
Uneven cash flows
Western Ranch Corporation is considering the two following projects with amounts in SAR.
Question 5 (a) Calculate the NPV for each project assuming a discount rate of 10%.
Question 5 (b) Explain which project is better and why.
Project A Project B
Cash outflow: (40,000,000) (40,000,000)
Cash Inflows: 6,000,000 22,000,000
9,000,000 18,000,000
18,000,000 9,000,000
22,000,000 6,000,000