Question

In: Finance

An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...

An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.2 million. Under Plan B, cash flows would be $1.9546 million per year for 20 years. The firm's WACC is 11.7%.

  1. Construct NPV profiles for Plans A and B. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. If an amount is zero, enter "0". Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places.

    Discount Rate NPV Plan A NPV Plan B
    0 % $    million     $    million    
    5   million   million
    10   million   million
    12   million   million
    15   million   million
    17   million   million
    20   million   million

    Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places.

    Project A:   %

    Project B:   %

    Find the crossover rate. Do not round intermediate calculations. Round your answer to two decimal places.

      %

Solutions

Expert Solution


Related Solutions

An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11.6 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.92 million. Under Plan B, cash flows would be $2.0612 million per year for 20 years. The firm's WACC is 12.4%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.36 million. Under Plan B, cash flows would be $2.2744 million per year for 20 years. The firm's WACC is 11.3%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11.4 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.68 million. Under Plan B, cash flows would be $2.0257 million per year for 20 years. The firm's WACC is 12.7%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.4 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $14.88 million. Under Plan B, cash flows would be $2.2034 million per year for 20 years. The firm's WACC is 11.6%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $14.16 million. Under Plan B, cash flows would be $2.0967 million per year for 20 years. The firm's WACC is 11.7%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11.2 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.44 million. Under Plan B, cash flows would be $1.9901 million per year for 20 years. The firm's WACC is 11.2%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.36 million. Under Plan B, cash flows would be $2.2744 million per year for 20 years. The firm's WACC is 12.6%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $13 million....
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $13 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.6 million. Under Plan B, cash flows would be $2.31 million per year for 20 years. The firm's WACC is 12.3%. Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. Enter...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $12.2 million....
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $12.2 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $14.64 million. Under Plan B, cash flows would be $2.1678 million per year for 20 years. The firm's WACC is 12.8%. Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. Enter...
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $12.8 million....
An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $12.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.36 million. Under Plan B, cash flows would be $2.2744 million per year for 20 years. The firm's WACC is 12.1%. Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. Enter...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT