Excel Practice

You are the financial manager of one of the multinational companies named Khansa Limited. Your company is planning to enter into a new business venture the company evaluating two projects. The first project is to start producing Detergents and the second project is to create dental care products. The company is considering starting both the projects if they are viable and have enough resources to start both the projects. Management thinks that three years is an acceptable payback period, and we can start the project if its payback period is equal to or less than three years. The company CEO wants to use other project appraisal techniques to evaluate the project before making a decision. As the financial manager, you estimate the cash flows for the next eight years from the project that are given below. You also estimate that these cash flows are relatable to the company's net profit before depreciation. The initial investment of the company in each project is OMR 2,250,000. The company hurdle rate is 12%, and it expects that project will cease to exist after eight years. The company is using the straight-line method for depreciation, and the company forecast that it will have an OMR 230,000 scrap value at the end of the project. As the company's financial manager, you have to advise the management about the viability of the project.

Year

1

2 3 4 5 6 7 8

Cash flows for Detergent Project

650,000

800,000 1,100,000 550,000 350,000 540,000 120,000 125,000

Cash flow from Dental Care Project

450,000

650,000 1,100,000 150,000 330,000 215,000 100,000 250,000