Business – Net Present Value (NPV) and Internal Rate of Return
Business Question
Problem 1: Net Present Value (NPV) and Internal Rate of Return You are considering a project with an initial cash outlay of 50,000 SAR and expected free cash flows of 15,000 SAR at the end
a. What is the projects’s NPV?
b. What is the project’s IRR?
c. Is the project acceptable based on NPV and IRR decision criteria.
Problem 2: Profitability Index (PI) and Payback Period You are considering a project with an initial cash outlay of 66,000 SAR and expected free cash flows of 23,000 SAR at the end
a. What is the project’s payback period?
b. What is the project’s profitabiity Index?
Problem 3: Uneven cash flows A firm is considering the two following projects with amounts in SAR.
(a) Calculate the NPV for each project assuming a discount rate of 5%.
(b) Explain which project is better and why.
Data Project A Rate Cash outflow: Cash Inflows: 5% -23,000,000 3,500,000 7,500,000 10,000,000 12,000,000 Project B 5% -63,000,000 19,000,000 15,000,000 9,000,000 8,000,000
Problem 4: Calculating the free cash flows A firm is considering a new project with a 4-year life with the following cost and revenue data.This project with require an inv This new equipment will be depreciated down to zero over 4 years using the simplified straight-line method and has no salva This new project will generate additional sales revenues of 100,000 SAR whereas additional operating costs, excluding deprec The company’s marginal tax rate is 35 percent. What is the project free cash flow in year 1?
Problem 5 Calculating project cash flows and NPV A corporation is considering the purchase of new equipment. Although the machine being considered will result in an increas This machine has an expected life of 8 years, after which it will have no salvage value. Also, assume that there is simplified st
a. What is the initial outlay assoicated with this project?
b. What are the annual after-tax cash flows associated with thisproject for years 1 through 9?
c. What is the terninal cash flow in year 10?
Insidered will result in an increase in earnings before interest and taxes of 25,000 SAR per year, it has a purchase price of 108,000 SAR, and rchase price of 108,000 SAR, and it would cost an additional 3,000 SAR to properly install the machine.
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