Question: A mining company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t=0 of $13.5 million. Under Plan A,

A mining company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t=0 of $13.5 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t+1 of $19.8 million. Under Plan B, cash flows would be $3.8 million per year for 9 years. Estimate the crossover rate of the NPVs for Plans A and B. If the firms WACC is 15% what is the NPV of the project you would recommend?

a.12.12% ; $3.72 million

b.12.12%; $4.63 million

c.14.60%; $3.72 million

d.16.97% ; $4.63 million

e. 12.26% ; $5.52 million

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