a. Select the cerrect graph for NPV profiles for Plans A and B. The correct graph is Identify each project's IRR. Round your answers to two decimal places. Project A: Project B: Indicate the crossover rate. Round your answer to two decimal places. numing oifferences The fwet Eapiscation Cempany is considering two mutualiy exclusive plans for extracting oll on property for which it has minerai nghts. Bech plans cal for the eugeneiture of 59.5 milion to dril development wells. Under Plan A, all the oll will be extracted in 1 vear, producing a cash flow at t=1 of $10.5 milion, under Ver D. cash fows will be $1.4 milition per year for 20 rears. *. What are the annual incremental cash fows that will be avaliable to Ewert Exploration if it undertakes Plan 8 rather than Pan A? (rine: Subtract Plan A) fow from Bz) Enter your answers in milions. For example, an answer of \$1.23 miltion should be entered as 1.23, not 1,230,000, hound your answer to tao decimal places. Use a minus sign to enter cash outflows, if any. b. It the companr accepts Plan A and then invests the extre cash generated at the end of Year 1 , what rate of return (reinvestment rate) would cause the cash fores from reimestment to equal the cash flows from Plan B? Round your answer to two decimal places. c. Suppest a firmis cost of capital is 10%, Is it logical to assume that the firm would take on all avallable independent projects (of average nuk) with returns qeater then 10 s? Further, if all available projects with returns greater than 10% have been taken, would this mean that cash flows from past irvestments would have an opoortunity cost of only 10% because all the firm could do with these cash flows would be to replace money that has a cost of 10 ? finalif boen this irmply that the cost of capital is the correct rate to assume for the reinvestment of a project's cash flows? I. Kes, the firm would taks on all avallable independent projects with greater than 10% returns. If taken, risk remains the same among projects and the covt of capital does not vary with the arnount of capital raised. II. No, the firm would net take on all available independent projects with greater than 10% returns. If taken, risk remains the ame among projects and the cest d capital coes not vary mith the amount of capital raised. III. res, the form would take on all avaliable independent projects with greater than 10% returns. If taken, risk varies with projects and the cost of captal vares with the arnount of capital rased
