Timing Differences

The Ewert Exploration Company is considering two mutually exclusive

plans for extracting oil on property for which it has mineral rights.

Both plans call for the expenditure of $$10\mathrm{.}5$ million to drill

development wells. Under Plan A$,$ all the oil will be extracted in $1$ year,

producing a cash flow at $t=1$ of $$13\mathrm{.}5$ million; under Plan B$,$ cash

flows will be $$2$ million per year for $20$ years.

a$.$ What are the annual incremental cash flows that will be available to

Ewert Exploration if it undertakes Plan B rather than Plan A$?($Hint:

Subtract Plan A$\text{'}$s flows from B$\text{'}$s$.)$ Enter your answers in millions.

For example, an answer of $$1\mathrm{.}23$ million should be entered as $1\mathrm{.}23,$

not $1,230,000.$ Round your answers to two decimal places. Use a

minus sign to enter cash outflows, if any.

b$.$ If the company accepts Plan A and then invests the extra cash

generated at the end of Year $1,$ what rate of return $($reinvestment

rate$)$ would cause the cash flows from reinvestment to equal the

cash flows from Plan B$?$ Round your answer to two decimal places.