Question

ssume that Goodrich Petroleum Corporation is evaluating a capital expenditure proposal that has the following predicted cash flows: Initial Investment $(42,550) Operation Year 1 14,000 Year 2 24,000 Year 3 19,000 Salvage 0 a. Using a discount rate of 10 percent, determine the net present value of the investment proposal. $ Answer (Round answer to the nearest whole number.) b. Determine the proposal's internal rate of return. (Refer to Appendix 12B if you use the table approach.) Round to the nearest percent. (Example: 0.15268 = 15%) Answer %

Answer 1

solution: a.NPV Year cash inflow | Discount factor at 1096 | PV 0 -42550 14000 24000 19000 1.00000 0.90909 0.82645 0.75131 42,550 12,727 19,835 14,275 4,287 NPV c.IRR by trial error method (Trial with 15% and then with 16% discount rate) Year 042550 14000 24000 19000 cash inflow | Discount factor at 15% | pV at 15% | Discount factor at 16% | PV at 16% 1.00000-42,550.00 0.86207 12,068.97 0.74316 17,835.91 0.64066 12,172.50 472.63 1.00000 -42,550.00 0.86957 12,173.91 0.75614 18,147.45 0.65752 12,492.81 NPV 264.17 NPV IRR 15% 15+(264.17/(264.17+472.63)) Sheet1719 Sheet1720 Sheet1721Sheet72Sheeti723 Sheeti 724 Sheeti725Sheet1726 ENG 08:05 US 03 05/2018