An oil drilling company must choose between two mutually exclusive extraction pr

Question

An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $12.6 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $15.12 million. Under Plan B, cash flows would be $2.2389 million per year for 20 years. The firm's WACC is 11.8%.

Discount Rate NPV Plan A NPV Plan B 0% $   million $   million 5 $   million $   million 10 $   million $   million 12 $   million $   million 15 $   million $   million 17 $   million $   million 20 $   million $   million

Explanation / Answer

Discount Rate

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