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: Year Cash Flow 0 –$ 38,900,000 1 62,900,000 2 – 11,900,000 a-1 What is the NPV for the project if the company requires a return of 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ a-2 Should the firm accept this project? No Yes b. This project has two IRR's, namely percent and 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. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

NPV

= -$38900000 + $62900000 * PVIF 11%,1 PERIOD + (-$11900000 * PVIF 11%, 2 PERIODS)

= -$38900000 + $62900000 * 0.9009 + (-$11900000 * 0.8116)

= -$38900000 + $56666610 - $9658040

= $8108570

YES THE FIRM SHOULD ACCEPT THE PROJECT.

B./

IRR OF THE PROJECT CAN BE FIND OUT BY USEING THE SPREAD SHEET.

IRR = 40%

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