NPV PROFILES TIMING DIFFERENCES An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $11 4 million Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t 1 of $13 68 million Under Plan B, cash flows would be $2 0257 million per year for 20 years The firm's WACC is 11 2 Construct NPV profiles for Plans A and B Round your answers to two decimal places Do not round your intermediate calculations 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 value should be indicated by a minus sign 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 Round your answers to two decimal places Do not round your intermediate calculations Project A Project B Find the crossover rate Round your answer to two decimal places Do not round your intermediate calculations Is it logical to assume that the firm would take on all available independent, average risk projects with returns greater than 11 2 If all available projects with returns greater than 11 2 have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 11 2 , because all the company can do with these cash flows is to replace money that has a cost of 11 2 Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows

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NPV PROFILES: TIMING DIFFERENCES An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $11.4 million. Under Plan A, all the

NPV PROFILES: TIMING DIFFERENCES

An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $11.4 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.68 million. Under Plan B, cash flows would be $2.0257 million per year for 20 years. The firm's WACC is 11.2%.

Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. 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 value should be indicated by a minus sign.

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. Round your answers to two decimal places. Do not round your intermediate calculations.

Project A ___%

Project B ___%

Find the crossover rate. Round your answer to two decimal places. Do not round your intermediate calculations. ____%

Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 11.2%?

If all available projects with returns greater than 11.2% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 11.2%, because all the company can do with these cash flows is to replace money that has a cost of 11.2%? Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?