Whether, a firm would recover all of the working capital investment invested in a project, is a reasonable assumption or not and when this assumption might not be valid. Working Capital: Working capital is the capital that a business needs to complete on its day to day requirement and to operate its daily operations. It is the measurement tool to determine the company’s efficiency and short term finance needed by the company. Formula to compute working capital, Working capital = Current Assets − Current Liabilities

Question

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 project's 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

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Question

Chapter 6, Problem 5CQ

Summary Introduction

To identify: Whether, a firm would recover all of the working capital investment invested in a project, is a reasonable assumption or not and when this assumption might not be valid.

Working Capital:

Working capital is the capital that a business needs to complete on its day to day requirement and to operate its daily operations. It is the measurement tool to determine the company’s efficiency and short term finance needed by the company.

Formula to compute working capital,

Working capital = Current Assets −Current Liabilities

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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 project's 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

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