Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the

Question

Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: a-1 What is the NPV for the project if the company requires a 12 percent return? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) a-2 Should the firm accept this project? b. This project has two IRR's, namely [ ] percent and [39.48] percent, in order from smallest to largest. (Note: If you can only compute one IRR value, you should input that amount into both answer boxes in order to obtain some credit.) (Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

We can solve it as quadractic equation

-39000000+63000000/(1+r)-12000000/(1+r)^2 =0

let 1/(1+r) = A

-39000000+63000000*A-12000000A^2 = 0

on solving we get,

A = 0.71696

or A = 4.533042

if A = 0.71696, then r = 1/0.71696-1

=39.48%

if A = 4.533042 then r = (1-4.533042)/4.533042

=-77.94%

Hence, the other IRR is -77.94%

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