Question: 2. You will need your spreadsheet program for this question. An oil prospecting firm must decide whether to extract oil from a tract that

2. You will need your spreadsheet program for this question. An oil

2. You will need your spreadsheet program for this question. An oil prospecting firm must decide whether to extract oil from a tract that it owns. The oil company must pay $4.5 million up front to begin oil extraction. The oil will provide $3.5 million in revenues for four years beginning next year. Once oil production ceases, the well must be capped, which costs $10.25 million the year after production ends. The cost of capital is 12%. Turn in a copy of your spreadsheet answers. a. Should the firm undertake this project? Use a spreadsheet program. b. Find all IRRs for this project. c. Does IRR rule agree with the NPV rule when the cost of capital is 12%? How do you know? d. Use a spreadsheet program to graph an NPV profile for costs of capital from 3% to 50%. Turn in a copy of your graph.

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Answer I The firm should take this investment as the NPV of the project is positive Any project whic... View full answer

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