Question: Light Sweet Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year _____________Cash Flow 0 .................... -$45,000,000 1 ...................... 78,000,000

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

Year _____________Cash Flow

0 .................... -$45,000,000

1 ...................... 78,000,000

2 ..................... -14,000,000

a. If the company requires a 12 percent return on its investments, should it accept this project? Why?

b. Compute the IRR for this project. How many IRRs are there? Using the IRR decision rule, should the company accept the project? What's going on here?

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