An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12 million. Under Plan A, all the oil would be extracted in 1 year producing a cash flow at t= 1 of $14.4 million. Under Plan B, cash flows would be $2.1323 million per year for 20 years. The firm's WACC is 11.3%. a. 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% 5 10 12 15 17 $ 20 20 2.40 1.71 17 1.09 .86 .52 .31 % million $ 30.65 million % million million million million 14.57 6.15 3.93 1.35 0.00 million million million 0 Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places. Project A: -1.62 million million million million million Project B: Determine the crossover rate. Approximate your answer to the nearest whole number. 16.41 % X
An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12 million. Under Plan A, all the oil would be extracted in 1 year producing a cash flow at t= 1 of $14.4 million. Under Plan B, cash flows would be $2.1323 million per year for 20 years. The firm's WACC is 11.3%. a. 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% 5 10 12 15 17 $ 20 20 2.40 1.71 17 1.09 .86 .52 .31 % million $ 30.65 million % million million million million 14.57 6.15 3.93 1.35 0.00 million million million 0 Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places. Project A: -1.62 million million million million million Project B: Determine the crossover rate. Approximate your answer to the nearest whole number. 16.41 % X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can you answer this queston from the image below. Determine the crossover rate. Approximate your answer to the nearest whole number.
Transcribed Image Text:An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $12 million. Under Plan A, all the oil would be extracted in 1 year,
producing a cash flow at t = 1 of $14.4 million. Under Plan B, cash flows would be $2.1323 million per year for 20 years. The firm's WACC is 11.3%.
a. 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%
5
10
12
15
17
20
$
20
2.40
%
1.71
1.09
.86
.52
.31
%
S
0
%
million
million
million
million
million
million
$ 30.65
14.57
6.15
3.93
1.35
0.00
million
million
Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places.
Project A:
million
-1.62
million
million
million
million
million
Project B:
17
Determine the crossover rate. Approximate your answer to the nearest whole number.
16.41
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