Question

In: Finance

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

0 –$ 38,400,000

1- 62,400,000

2 – 11,400,000

a-1 What is the NPV for the project if the company requires a return of 10 percent?

a-2 Should the company accept this project? Yes or No?

b. The project has two IRR'S, namely _____ percent and _____ percent, in order from smallest to largest

Solutions

Expert Solution

1.
=-38400000+62400000/1.1-11400000/1.1^2

=8905785.124
2.

Accept

3.
-38400000+62400000/(1+x)-11400000/(1+x)^2=0

=>IRR=x=41.523%

-79.023% and 41.523% from smallest to largest


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