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:

  

What is the NPV for the project if the company requires a return of 12 percent?

  

  

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.)

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

Explanation / Answer

Part A

To compute NPV, we need to compute PV of each cash flows and add them all:

Year

Cash flow

PV Factor 12%

PV

0

-39300000

1.00000

-39300000.00

1

63300000

0.89286

56517857.14

2

-12300000

0.79719

-9805484.69

NPV

7412372.45

So NPV would be 7,412,372.45.

Part B

Since NPV is positive, this project should be accepted.

Part C

We can calculate IRR using IRR function in excel, IRR is :

IRR 1 = 38.47%

IRR 2= 38.47%

Year

Cash flow

PV Factor 12%

PV

0

-39300000

1.00000

-39300000.00

1

63300000

0.89286

56517857.14

2

-12300000

0.79719

-9805484.69

NPV

7412372.45

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