A company has two good but highly speculative opportunities to invest in, gas field A and oil field B, yet only enough capital to invest in one due to a stiff interest rate of 15% for both. The investments and expected cash flows are below. Which alternative should be selected based on NPV analysis?
A) Investment A; NPV of A >$50,000 more than “B”
B) Investment A; NPV of A <$50,000 more than “B”
C) Investment B; NPV of B <$50,000 more than “A”
D) Investment B; NPV of B >$50,000 more than “A”
A and B
Initial invest: $200M and $300M
Annual revenue: $100M and $150M
Annual expense: $10M and $25M
Invest life (yrs): 7 and 7
Salvage Value: $50M and $175M
