Question

NPV PROFILES: TIMING DIFFERENCES

An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $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 12%.

1. Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. 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 value should be indicated by a minus sign.

   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. Round your answers to two decimal places. Do not round your intermediate calculations.

   Project A %

   Project B %

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

Answer 1