light sweet petroleum, inc., is trying to evaluate a generation project with the following cash flows. if…

light sweet petroleum, inc., is trying to evaluate a generation project with the following cash flows. if the company requires a return of 12 percent on its investments, what is the projects npv? what are the irrs for the project? year 0 $ (45,000,000) year 1 $ 71,000,000 year 2 $ (15,000,000) required return 12% complete the following analysis. do not hard code values in your calculations. use a \guess\ of .99 to calculate the higher irr and -.99 to calculate the lower irr. you must use the built - in excel functions to answer this question. npv higher irr lower irr

light sweet petroleum, inc., is trying to evaluate a generation project with the following cash flows. if the company requires a return of 12 percent on its investments, what is the projects npv? what are the irrs for the project? year 0 $ (45,000,000) year 1 $ 71,000,000 year 2 $ (15,000,000) required return 12% complete the following analysis. do not hard code values in your calculations. use a \guess\ of .99 to calculate the higher irr and -.99 to calculate the lower irr. you must use the built - in excel functions to answer this question. npv higher irr lower irr

Answer

Explanation:

Step1: Recall NPV formula

The NPV formula is $NPV = \sum_{t = 0}^{n}\frac{CF_t}{(1 + r)^t}$, where $CF_t$ is the cash - flow at time $t$ and $r$ is the discount rate. For $t = 0$, $CF_0=-45000000$, for $t = 1$, $CF_1 = 71000000$, for $t = 2$, $CF_2=-15000000$ and $r = 0.12$. $NPV=-45000000+\frac{71000000}{1 + 0.12}+\frac{-15000000}{(1 + 0.12)^2}$

Step2: Calculate each term

First term: $-45000000$ Second term: $\frac{71000000}{1.12}\approx63392857.14$ Third term: $\frac{-15000000}{1.12^2}=\frac{-15000000}{1.2544}\approx - 11957907.4$

Step3: Sum up the terms

$NPV=-45000000 + 63392857.14-11957907.4\approx6434949.74$

To find the IRR in Excel:

  • For the higher IRR, use the formula =IRR({-45000000,71000000,-15000000},0.99)
  • For the lower IRR, use the formula =IRR({-45000000,71000000,-15000000}, - 0.99)

Answer:

NPV: $\approx6434949.74$ Higher IRR: (Calculated using Excel IRR function with guess = 0.99) Lower IRR: (Calculated using Excel IRR function with guess=-0.99)