2 the fun food corportion must decide on what product lines to introduce next year. after the tax cash flows are listed below along with intial investments. the firm's cost of capital

2. The Pennco Oil Co. must decide whether it is financially feasible to open an oil well off the coast of China. The drilling and rigging cost for the well is $5,000,000. The well is expected to yield 585,000 barrels of oil a year at a net profit to Pennco of $5 a barrel for four years. The well will then be effectively depleted but must be capped and secured at a cost of $4,000,000. Pennco requires an annual rate of return of 14% on its investment pro- jects. Should Pennco open the well? (Assume all of a year's production occurs at the end of the year.) cuse NPV method is 12% and its target accounting rate of return is 20%. Assume straight-line depreciation and an asset life of five years. The corporate tax rate is 35%. All projects are independent. Project Investment Year 1 2 3 4 5 $5,000 $800 $1,000 $350 $1,250 $3,000 B $7,500 $1,250 $3,000 $2,500 $5,000 $5,000 $4,000 $600 $1,200 $1,200 $2,400 $3,000 Calculate the accounting rate of return on the project. Which projects are acceptable according to this criterion? (Note: Assume net income is equal to after-tax cash flow less depreciation.) b) Calculate the payback period. All projects with a payback of fewer than four years are acceptable. Which are acceptable according to this criterion? Calculate the projects' NPVs. Which are acceptable according to this criterion? d. Calculate the projects' IRRs. Which are acceptable according to this criterion? Which projects should be chosen