fin week 12

Problem 12-1: Net Present Value (NPV)

Chapter 10

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%.

Calculate the Net Present Value (NPV) of the project.

Problem 12-2: Profitability Index (PI)

Chapter 10

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%.

Calculate the Profitablility Index (PI) of the project. (Round to 2 decimal places.)

Problem 12-3: Internal Rate of Return (IRR)

Chapter 10

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%.

Calculate the Internal Rate of Return (IRR) of the project. (Round to 2 decimal places.)

Problem 12-4: Payback

Chapter 10

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%.

Calculate the Payback Period for the project. (Round to 2 decimal places.)

Problem 12-5: NPV, PI, IRR and Payback

Chapter 10

Recalculate (a) NPV, (b) PI, (c) IRR and (d) Payback for the facts above

using a discount rate of 12%.

Problem 12-6: Uneven cash flows

Chapter 10

Western Ranch Corporation is considering the two following projects with amounts in SAR.

(a) Calculate the NPV for each project assuming a discount rate of 10%.

(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