90.2K

Verified Solution

Link Copied!

Help finding payback period please

(Payback period and NPV calculations) Plato Energy is an oil and gas exploration and development company located in Farmington, New Mexico. The company drills shallow wells in hopes of finding significant oil and gas deposits. The firm is considering two different drilling opportunities that have very different production potentials. The first is in the Barnett Shale region of central Texas and the other is in the Gulf Coast. The Barnett Shale project requires a much larger initial investment but provides cash flows (if successful) over a much longer period of time than the Gulf Coast opportunity. In addition, the longer life of the Barnett Shale project also results in additional expenditures in year 3 of the project to enhance production throughout the project's 10-year expected life. This expenditure involves purnping either water or CO2 down into the wells in order to increase the flow of oil and gas from the structure. The expected cash flows for the two projects are as follows: a. What is the payback period for each of the two projects? a. Given the cash flow information in the table, the payback period of the Barnett Shale project is years. (Round to two decimal places.) \begin{tabular}{|ccc|} \hline Year & Barnett Shale & Gulf Coast \\ \hline 0 & $(4,600,000) & $(1,400,000) \\ 1 & 1,840,000 & 750,000 \\ 2 & 1,840,000 & 750,000 \\ 3 & (920,000) & 350,000 \\ 4 & 1,840,000 & 140,000 \\ 5 & 1,440,000 & \\ 6 & 1,440,000 & \\ 7 & 1,440,000 & \\ 8 & 750,000 & \\ 9 & 600,000 & \\ 10 & 110,000 & \\ \hline \end{tabular}

Answer & Explanation Solved by verified expert

See Answer