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

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Finance

Light Sweet Petroleum, Inc., is trying to evaluate a generationproject 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 returnof 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.

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4.5 Ratings (819 Votes)

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%

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Transcribed Image Text

Light Sweet Petroleum, Inc., is trying to evaluate a generationproject with the following cash flows: YearCash Flow0–$38,000,000162,000,0002–11,000,000What is the NPV for the project if the company requires a returnof 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.