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

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

  

Year Cash Flow
0 –$ 38,000,000
1 62,000,000
2 – 11,000,000

What is the NPV for the project if the company requires a return of 11 percent?

Should the company accept this project?

Fill in the blank: This project has two IRR's namely, ______ percent and _______ percent, in order from smallest to largest.

Solutions

Expert Solution

Ans NPV = $ 8588010.20

The Project should be accepted since NPV is positive

Year Project Cash Flows (i) DF@ 11% DF@ 11% (ii) PV of Project A ( (i) * (ii) ) DF@ 42.901% (iii) PV of Project A ( (i) * (iii) )
0 -38000000 1 1           (3,80,00,000.00) 1    (3,80,00,000.00)
1 62000000 1/((1+11%)^1) 0.893            5,53,57,142.86 0.700     4,33,86,680.29
2 -11000000 1/((1+11%)^2) 0.797              (87,69,132.65) 0.490       (53,86,692.06)
NPV                85,88,010.20 NPV                    (11.77)

IRR is 42.901%

jeff jeffy answered 2 months ago
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