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The Drillage Company is involved in searching for locations in which to drill for oil. The firm's current project requires an initial investment of $15
The Drillage Company is involved in searching for locations in which to drill for oil. The firm's current project requires an initial investment of $15 million and has an estimated life of 10 years. The expected future cash inflows for the project are as shown in the following table. The firm's current cost of capital is 13%. TO DO Create a spreadsheet to answer the following questions. Calculate the project's net present value (NPV). Is the project acceptable under the NPV technique? Explain. Calculate the project's internal rate of return (IRR). Is the project acceptable under the IRR technique? Explain. In this ease, did the two methods produce the same results? Generally, is there a preference between the NPVand IRR techniques? Explain. Calculate the payback period for the project. It the firm usually accepts protects that have payback periods between 1 and 7 years, is this project acceptable? Visit www.myfinoncelab.com for Chapter Case: Making Norwich Tool's Lathe Investment Decision, Group Exercises, and numerous online resources
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