Question: Cutler Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year .....................Cash Flow 0 .....................$ 78,000,000 1 ........................110,000,000 2 .......................13,000,000

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

Year .....................Cash Flow

0 .....................−$ 78,000,000

1 ........................110,000,000

2 .......................−13,000,000

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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