Question
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11 million. Under
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.2 million. Under Plan B, cash flows would be $1.9546 million per year for 20 years. The firm's WACC is 12%.
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 10.55. 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 |
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. 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.
%
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