An oil$-$drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at $t=0$ of $$12\mathrm{.}6$ million. Under Plan A all the oil would be

extracted in $1$ year, producing a cash flow at $t=1$ of $$15\mathrm{.}12$ million. Under Plan $B,$ cash flows would be $$2\mathrm{.}2389$ million per year for $20$ years. The firm's WACC is $12\mathrm{.}8\%.$

a$.$ 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 $10\mathrm{.}55.$ 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

million

$

million

$5$

million

million

$10$

million

$12$

million

$15$

million

million

$17$

million

million

$20$

million

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.

$\%$

b$.$ Is it logical to assume that the firm would take on all available independent, average$-$risk projects with returns greater than $12\mathrm{.}8\%?$

If all available projects with returns greater than $12\mathrm{.}8\%$ have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only $12\mathrm{.}8\%,$ because

all the company can do with these cash flows is to replace money that has a cost of $12\mathrm{.}8\%?$

Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?