Question: A mining company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t=0 of $12 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 $12 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t+1 of $18.3 million. Under Plan B, cash flows would be $3.2 million per year for 8 years. Estimate the crossover rate of the NPVs for Plans A and B. If the firm's WACC is 13% what is the NPV of the project you would recommend? 10.96%: $3.36 million 10.78%; $3.36 million 10.96%; $4.19 million O 11.26%; $5.51 million 10.78%; $4.19 million
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