FNCE 623 Financial Management

Individual assignment

Belgravia Petroleum Inc. is trying to evaluate a generation project with the following cash flows:

Year Cashflow 0 -$300,000,000 1 $63,000,000 2 $85,000,000 3 -$50,000,000 4 $145,000,000 5 $175,000,000 6 -$50,000,000 7 $70,000,000 8 $72,000,000

Construct a spreadsheet and calculate the following (the required rate of return is 12%):

Payback period

Discounted payback period

Modified IRR

The discounting approach

The reinvestment approach

The combination approach

Net present value (NPV)

Based on your analysis, should the company take the project? Why?

IMPORTANT: Use MS Excel functions (PV, FV, NPV, and IRR) in your spreadshee