Identify each project''s irr

Reference no: EM131283521

NPV PROFILES: TIMING DIFFERENCES An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $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 $2.1 million per year for 20 years. The firm's WACC is 12%.

a. Construct NPV profiles for Plans A and B, identify each project's IRR, and show the approximate crossover rate.

b. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12%? If all available projects with returns greater than 12% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 12% because all the company can do with these cash flows is to replace money that has a cost of 12%? Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?

Reference no: EM131283521

Questions Cloud

A high tech firm has just developed a new technology : The company needs to estimate the demand for such a service. Would it use primary or secondary data, or a combination of the two?

The jackets are being produced in the dominican republic : The Limited is planning a new line of jackets for fall. It plans to sell the jackets for $100. The jackets are being produced in the Dominican Republic. Even though The Limited doesn't own the factory, it's product development and design costs are $4..

What type of research method would you recommend : A bank manager notices that by the time customers get to the teller, they seem irritated and impatient.- What type of research method would you recommend? Is it an exploratory or conclusive method?

Make a pie chart for your business income and spending : Create a label called "Income" and add your monthly business income in the next cell: $25,000. Create a pie chart for your business income and spending.

Identify each project''s irr : Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?

Job opportunity you have chosen : Read the Cover Letter Guide, locate a current job opportunity that is of interest to you using Indeed.com or another career resource center, and discuss the following:

Write a page on effective way of intercultural communication : Write a formal report (10 pages not including title page, table of contents, and bibliography pages) on your project topic, based on secondary research. Include supporting material, especially detailed data in tables, in the Appendix rather than i..

Which study was exploratory and which was conclusive : Which study was exploratory and which was conclusive? What other studies would you recommend Snapple undertake?

Outline some attributes of a project : Using the concepts within the textbook, outline some attributes of a project, and describe their overall purpose. Explain how a project would be affected if any of the attributes were suddenly removed. Your response should be at least 200 words in..

User Account

All Pages