NPV and IRR: Unequal Annual Net Cash Inflows Assume that Goodrich Petroleum Corp

Question

NPV and IRR: Unequal Annual Net Cash Inflows
Assume that Goodrich Petroleum Corporation is evaluating a capital expenditure proposal that has the following predicted cash flows:

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%

Initial Investment $(48,660) Operation Year 1 16,000 Year 2 26,000 Year 3 21,000 Salvage 0

Explanation / Answer

Solution a:

Solution b:

For computation of IRR, lets calculate NPV at 13% and 14% discount rate.

IRR = 13% + ($415 - $0) / ($415 - (-$444)) = 13.48% = 13% (Rounded off to nearest percent)

Computation of NPV - Goodrich Petroleum Corporation Particulars Period PV Factor Amount Present Value Cash outflows: Initial Investment 0 1 $48,660.00 $48,660 Present Value of Cash outflows (A) $48,660 Cash Inflows Year 1 1 0.90909 $16,000.00 $14,545 Year 2 2 0.82645 $26,000.00 $21,488 Year 3 3 0.75131 $21,000.00 $15,778 Present Value of Cash Inflows (B) $51,811 Net Present Value (NPV) (B-A) $3,151

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