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 cashflow 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 12.8%.a. Construct NPV profiles for Plans A and B. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. If an amount is zero, enter "0". Negative values, if any, should beindicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places.Discount RateNPV Plan ANPV Plan B0%$million$million5millionmillion10millionmillion12millionI million15million1720millionmillionmillionmillionmillionIdentify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places.Project A:%Project B:%Find the crossover rate. Do not round intermediate calculations. Round your answer to two decimal places.%b. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12.8%?

Referencehttps://www.investopedia.com/terms/w/wacc.asp

Answered: An oil-drilling company must choose…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 3CMA

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