Question: Cutler Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow_ 0 .....................-$ 85,000,000 1 ...................... 125,000,000 2

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

Year Cash Flow_

0 .....................-$ 85,000,000

1 ...................... 125,000,000

2 ...................... - 15,000,000

a. If the company requires a 10 percent return on its investments, should it accept this project? Why?

b. Compute the IRR for this project. How many IRRs are there? If you apply the IRR decision rule, should you accept the project or not? What’s going on here?

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a The equation for the NPV of the project is NPV 85000000 12500000011 ... View full answer

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