The Kuwait Oil Exploration Company is considering two mutually exclusive plans for extracting oil property for which it has mineral rights Plan A calls for the expenditure of $1,000,000 to drill development wells and Plan B calls for the expenditure of $1,500,000 Under Plan A, cash flows will be $30,000 per year for the next 50 years Under Plan B, cash flows will be $50,000 per year for the next 50 years Assume that the required rate of return is 8 (5 points) Calculate the regular payback period for both projects and determine which should be accepted if the target payback period is 30 years Explain why (5 points) Calculate the discounted payback period for both projects and determine which should be accepted if the target payback period is 48 years Explain why (5 points) Calculate the internal rate of return (IRR) for both projects and determine which should be accepted Explain why (5 points) Calculate the profitability index (PI) for both projects and determine which should be accepted Explain why (5 points) Find the crossover rate Provide the equation (8 points) Sketch the NPV profile You must provide 5 coordinates on the vertical and horizontal axis (7 points) Assuming that the required rate of return is 1 Which project should be accepted if the NPV method is applied Which project should be accepted if the IRR method is applied Is there any ranking conflict between the NPV and IRR You must NOT recalculate the NPV and IRR, but employ the NPV profile you sketched in part (f)

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The Kuwait Oil Exploration Company is considering two mutually exclusive plans for extracting oil property for which it has mineral rights. Plan A calls for the expenditure of $1,000,000 to drill development wells and Plan B calls for the expenditure of $1,500,000. Under Plan A, cash flows will be $30,000 per year for the next 50 years. Under Plan B, cash flows will be $50,000 per year for the next 50 years. Assume that the required rate of return is 8%.

(5 points) Calculate the regular payback period for both projects and determine which should be accepted if the target payback period is 30 years. Explain why

(5 points) Calculate the discounted payback period for both projects and determine which should be accepted if the target payback period is 48 years. Explain why.

(5 points) Calculate the internal rate of return (IRR) for both projects and determine which should be accepted. Explain why.

(5 points) Calculate the profitability index (PI) for both projects and determine which should be accepted. Explain why.

(8 points) Sketch the NPV profile. You must provide 5 coordinates on the vertical and horizontal axis.

(7 points) Assuming that the required rate of return is 1%. Which project should be accepted if the NPV method is applied? Which project should be accepted if the IRR method is applied? Is there any ranking conflict between the NPV and IRR? You must NOT recalculate the NPV and IRR, but employ the NPV profile you sketched in part (f).