R* Timing Differences The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil on property for which it has mineral rights. Both plans call for the expenditure of $11 million to drill development wells. Under Plan A all the oil will be extracted in 1 year, producing a cash flow at t-1 of $11.5 millions under Plan B, cash flows will be $1.5 million per year for 20 years. a. What are the annual incremental cash flows that will be available to Ewert Exploration if it undertake Plan B rather than Plan A7 (Hint: Subtract Plan A's flows from B's.) Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places. Use a minus sign to enter cash outlows, if arvy: Year Incremental Cash Flow (B A) 1 $ million 2-20 million b. If the company accepts Plan A and then invests the extra cash generated at the end of Year 1, what rate of return (reinvestment rate) would cause the cash flows from reinvestment to equal the cash flows from Plan B Round your answer to two decimal places (ON 89 NPW 15 10 c. Suppose a firm's cost of capital is 10%. Is it logical to assume that the fim would take on all available independent projects (of average risk) with ceturns greater than 10% Further, if all available projects with retums greater than 10% have been taken, would this mean that cash flows from past investments would have an opportunity cost of only 10% because all the firm could do with these cash flows would be to replace money that has a cost of 1037 Finally, does this imply that the cost of capital is the correct rate to assure for the reinvestment of a project's cash flows? 1. No, the firm would not take on all available independent projects with greater than 10 returns. If taken, risk remains the same among projects And the cost of capital does not vary with the amount of capital raised II. Yes, the firm would take on all available independent projects with greater than 10% returns. If taken, risk varies with projects and the cost of capital varies with the amount of capital raised, ill. Yes, the firm would take on all available independent projects with greater than 10% returns. If take risk remains the same mong projects and the cost of cap does not very with the amount of capitale d. Select the correct graph for PV profiles for Plans A and 8. The correct graph is . Identity each project's RR. Round your answers to two decimal Project AL Project Indicate the crossover rate. Round your answer to the decimal place R* Timing Differences The Ewert Exploration Company is considering two mutually exclusive plans for extracting oil on property for which it has mineral rights. Both plans call for the expenditure of $11 million to drill development wells. Under Plan A all the oil will be extracted in 1 year, producing a cash flow at t-1 of $11.5 millions under Plan B, cash flows will be $1.5 million per year for 20 years. a. What are the annual incremental cash flows that will be available to Ewert Exploration if it undertake Plan B rather than Plan A7 (Hint: Subtract Plan A's flows from B's.) Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places. Use a minus sign to enter cash outlows, if arvy: Year Incremental Cash Flow (B A) 1 $ million 2-20 million b. If the company accepts Plan A and then invests the extra cash generated at the end of Year 1, what rate of return (reinvestment rate) would cause the cash flows from reinvestment to equal the cash flows from Plan B Round your answer to two decimal places (ON 89 NPW 15 10 c. Suppose a firm's cost of capital is 10%. Is it logical to assume that the fim would take on all available independent projects (of average risk) with ceturns greater than 10% Further, if all available projects with retums greater than 10% have been taken, would this mean that cash flows from past investments would have an opportunity cost of only 10% because all the firm could do with these cash flows would be to replace money that has a cost of 1037 Finally, does this imply that the cost of capital is the correct rate to assure for the reinvestment of a project's cash flows? 1. No, the firm would not take on all available independent projects with greater than 10 returns. If taken, risk remains the same among projects And the cost of capital does not vary with the amount of capital raised II. Yes, the firm would take on all available independent projects with greater than 10% returns. If taken, risk varies with projects and the cost of capital varies with the amount of capital raised, ill. Yes, the firm would take on all available independent projects with greater than 10% returns. If take risk remains the same mong projects and the cost of cap does not very with the amount of capitale d. Select the correct graph for PV profiles for Plans A and 8. The correct graph is . Identity each project's RR. Round your answers to two decimal Project AL Project Indicate the crossover rate. Round your answer to the decimal place