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

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
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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):  

 

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