Calculate the profitablility index

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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

Reference no: EM132481982

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