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 $ % million % million million million million million million $ million million million million million million Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places. Project A: Project B: Determine the crossover rate. Approximate your answer to the nearest whole number. million

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 $ % million % million million million million million million $ million million million million million million Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places. Project A: Project B: Determine the crossover rate. Approximate your answer to the nearest whole number. million

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

See similar textbooks

Similar questions

Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of $35,700, $62,070, $62,450, $60,260, and $43,300, respectively. The project has an initial cost of $158,080 and the required return is 8.3 percent. What is the project's NPV?
Give typing answer with explanation and conclusion Project S requires an initial outlay at t = 0 of $13,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $28,000, and its expected cash flows would be $13,850 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. a. Neither Project S nor L, because each project's NPV < 0. b. Both Projects S and L, because both projects have NPV's > 0. c. Project S, because the NPVS > NPVL. d. Both Projects S and L, because both projects have IRR's > 0. e. Project L, because the NPVL > NPVS.
A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. Calculate each project's NPV. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. Plan A: $. million Plan B: $ million Calculate each project's IRR. Round your answers to one decimal place. Plan A: % Plan B: % By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Round your answer to one decimal place. % Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one…
A project will produce an operating cash flow of $14,600 a year for 7 years. The initial fixed asset investment in the project will be $48,900. The net aftertax salvage value is estimated at $12,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 12 percent? Group of answer choices $22,627.54 $23,159.04 $34,627.54 $39,070.26 $41,040.83 please please solve it with a finance calculator and show your work, I know the answer but looking for some easy way to slove it by a finance calculator
Use the following information to answer questions 11-15:A firm evaluates a project with the following cash flows. The firm has a 2 year payback period criteria and a required return of 11 percent.Year0 1 2 3 4 5Cash flow (OMR) -24,000 17,000 12,000 9,000 -8,000 11,0001-Whatis the net present value for the project?2-Whatis the payback period for the project?3-what is the discounted payback period for the project? 4-What is the profitability index for the project?5-Given your analysis, should the firm accept or reject the project?
Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? Select the correct answer. a. Project L, because the NPVL > NPVS. b. Neither Project S nor L, because each project's NPV < 0. c. Both Projects S and L, because both projects have NPV's > 0. d. Both Projects S and L, because both projects have IRR's > 0. e. Project S, because the NPVS > NPVL.
K- Consider a project with free cash flow in one year of $140,702 or $180,360, with either outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 17%. The risk-free interest rate is 5% (Assume no taxes or distress costs) a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this way-that is, what is the initial market value of the unlevered equity? c. Suppose the initial $80,000 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value according to M&M? a. What is the NPV of this project? The NPV is $ 57200 (Round to the nearest dollar) b. Suppose that to raise the funds for the initial investment, the project is sold to investors…
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm’s cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project’s cash flow and each project’s beta, as shown in the following table. Project (j) E F G Initial investment (CF0) -$15,000 -$11,000 -$19,000 Year (t) Cash inflows (CFt) 1 $6,000 $6,000 $ 4,000 2 6,000 4,000 6,000 3 6,000 5,000 8,000 4 6,000 2,000 12,000 Beta 1.80 1.00 0.60 a. Find the NPV of each project, using the firm’s cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADRj = RF + Bj x (rm -RF) Where RF = risk-free rate 2% Bj = beta of project j RADRj = risk-adjusted discount rate for project j rm = expected return on market portfolio 10% Substitute each project’s beta into this equation to determine its RADR. c. Use the RADR for each project to…
Use the following information to answer questions 11-15: A firm evaluates a project with the following cash flows. The firm has a 2 year payback period criteria and a required return of 17 percent. Year Cash flow (OMR) |-39,000 28,000 19,000 14,000 -12,000 10,000 4 11. What is the net present value for the project?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS