Howell Petroleum, Inc., is trying to evaluate a generation project with the foll

Question

Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows

If the company requires a 9 percent return on its investments, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Compute the IRRs for this project. (Do not round intermediate calculations. Enter the positive value in the first answer box, and the negative value in the second answer box. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows

Explanation / Answer

1)

NPV = present value of cash flows -Initial investment

        = (63,761,385 - 15,991,920 ) -44,000,000

       = 47,769,465 -44,000,000

     = $ 3,769,465

2) we will select two rates which gives present value of cash flow one below initial investment and one above it.

Present value of cash flow @ 9% - 47,769,465

present value of cash flow @ 23% -43,945,402.87  

[(69,500,000*PVF@23%,1year ) +(-19,000,000*PVF@23%,2year)

IRR =LDR +[NPV *(HDR -LDR) ] /[Present value @LDR -present value att HDR)]

      = 9 + [3,769,465 *(23 -9) ] /[(47,769,465 - 43,945,402.87 ]

      = 9 + [3,769,465 * 14 ] / 3,824,062.13

    = 9 + [52772510 / 3824062.13]

   = 9 + 13.80

   = 22.80%

year cash flow(A) present value @ 9% (B) Present value of cash flow(A*B) 0 - 44,000,000 1 - 44,000,000 1 69,500,000 .91743       63,761,385 2 - 19,000,000 .84168 - 15,991,920 NPV 3,769,465

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