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

1. If the company requires a return of 12 percent on its investments, should it accept this project? Why?
2. Compute the IRR for this project. How many IRRs are there? Using the IRR decision rule, should the company accept the project? Whats going on here?

2-NPV versus IRR. Consider the following two mutually exclusive projects:

1. Sketch the NPV profiles for X and Y over a range of discount rates from zero to 25 percent. What is the crossover rate for these two projects?

Year Cash Flow 0 -$48,000,000 1 71,000,000 2 13,000,000 Year Cash Flow (X) Cash Flow (Y) 0 -$23,000 -$23,000 1 10,490 12,000 2 10,900 9,360 3 10,500 10,400