Emma an ambitious business women wants to determine if she should expand her drilling operation into Oklahoma. Her business recently purchased drilling rights for $2.0 Million and it costs $800,000 to install a well on the land. These costs will be spent at the beginning(Year 0 Cash Flow).

Note: Use a 3 year depreciation schedule. There is no salvage value.

Emma has also provided a chart below with probabilities.

She also told you that a Natural Gas Well has a 4 year life expectancy. Meaning after 4 years, the Well no longer produces gas and the business has to pay Clean-Up Costs which costs $90,000 to remove the Gas Well.

Economics Forecasts predict that the corporate tax rate will be 30% and inflation will remain at 2% throughout the entire life of the project. Also the business's cost of capital was 10% and no royalties are will be paid for production of Natural Gas.

What is the project's NPV (Net Present Value)?

\begin{tabular}{|c|c|c|c|} \hline Variables & Pessimistic Senario & Neutral Senario & Optimistic Senario \\ \hline Probability & 20% & 35% & 45% \\ \hline Drilling Cost & $800,000.00 & $400,000.00 & $200,000.00 \\ \hline Well Production(MCF/Year) & 100,000 & 250,000 & 300,000 \\ \hline Natural Gas price(per MCF) & 6.00 & 10.00 & 20.00 \\ \hline Operating Expenses(Cost per MCF)) & 2.00 & 1.50 & 1.00 \\ \hline Clean-Up Costs & $90,000.00 & $50,000.00 & $10,000.00 \\ \hline \end{tabular}