Question
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.6 million. Under
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12.6 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.12 million. Under Plan B, cash flows would be $2.2389 million per year for 20 years. The firm's WACC is 11%.
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: %
Determine the crossover rate. Approximate your answer to the nearest whole number.
%
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