ne Oil & Gas is considering an investment in Perfect Lease. Given the following information, calculate the payback period (in months). Should Sunshine invest in Perfect Lease if management requires a payback period of less than 36 months?   Acquisition cost of Perfect Lease   $60,000   Drilling cost of one well   $450,000   Estimated completion cos

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

Mf2.

Sunshine Oil & Gas is considering an investment in Perfect Lease. Given the following information, calculate the payback period (in months). Should Sunshine invest in Perfect Lease if management requires a payback period of less than 36 months?

 

Acquisition cost of Perfect Lease

 

$60,000

 

Drilling cost of one well

 

$450,000

 

Estimated completion cost

 

$600,000

 

Estimated selling price per bbl

 

$55

 

Estimated lifting cost per bbl

 

$20

 

State severance tax

 

6%

 

Royalty interest

 

10%

 

Estimated monthly production

 

750 bbls per month

 

Payback period (in months, rounded to two decimal places):  

 

Based on payback, should Sunshine invest in Perfect Lease? (yes or no):  

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education