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

NPV = C1/(1+r)^1+C2/(1+r)^2 = initial investment

NPV = 59500000/(1+0.09)^1+ (-14000000)/(1+0.09)^2-39000000

NPV =54587156 - 11783520 - 39000000

NPV = $3803636

IRR - Going by the trial and error method ,Rate at which NPV is zero is IRR

taking IRR as 23%

0 = 59500000/(1+0.23)^1+ (-14000000)/(1+0.23)^2-39000000

=39120233 - 3900000 = 120232.7, Here npv is positive

Taking IRR at 24%

0 = 59500000/(1+0.24)^1+ (-14000000)/(1+0.24)^2-39000000

=38878772 - 39000000 = -121228

at 24% NPV is Negative

so IRR is 23%

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