L02, 8 Petroleum orporation (GDP) NPV and IRR: Unequal Annual Net Cash Inflows A

Question

L02, 8 Petroleum orporation (GDP) 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: E12-20. Initial in Operation $(45,880) 15,000 25,000 20,000 Chapter 12 Capital Budgeting Decisions 477 Required a. Using a discount rate of 10 percent, determine the net present value of the investment proposal b. Determine the proposal's internal rate of return. (Refer to Appendix 12B if you use the table approach.)

Explanation / Answer

a calculation of the net present value 1 years 1 2 3 2 cash flows 15000 25000 20000 3 PVRF at 10 % 0.9091 0.8264 0.7513 4 present value cash flows ( 2 * 3 ) 13636 20661 15026 5 total present value 49324 6 initial cash outlay 45880 7 net present value ( 5 - 6 ) 3444 b calculation of the internal rate of return years 0 1 2 3 cash flows per year -45880 15000 25000 20000 internal rate of return using excel .=irr( total cash flows from year 0 to 3 ) 14.02%

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