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

outlay at $t=0$ of $$12\mathrm{.}2$ million. Under Plan $A,$ all the oil would be extracted in $1$ year, producing a cash flow at $t=1$

of $$14\mathrm{.}64$ million. Under Plan B$,$ cash flows would be $$2\mathrm{.}1678$ million per year for $20$ years. The firm's WACC is

$13\%.$

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

$)$

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 $13\%?$

If all available projects with returns greater than $13\%$ have been undertaken, does this mean that cash flows

from past investments have an opportunity cost of only $13\%,$ because all the company can do with these cash

flows is to replace money that has a cost of $13\%?$

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