HW Score: 55.08% , 66.09 of 120 pts 4 OT 18 (15 Complete) P11-23 (similar to) EQuestion Help (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 Bamett 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 Barmett Shale project also results in additional expenditures in year 3 of the project to enhance production throughout the projects 10-year expected life. This expenditure involves pumping either water or CO, 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 12 follows a. What is the payback period for each of the two projects? tic b. Based on the payback periods, which of the two projects appears to be the best alternative? What are the limitations of the payback period ranking? That is what does the payback period not consider that is important in determining the value creation potential of these two projects? c. If Plato's management uses a discount rate of 18.4 percent to evaluate the present values of its energy investment projects, what is the NPV of the two proposed investments? a. Given the cash flow information in the table, the payback period of the Barnett Shale project is years (Round to two decimal places) ions) Plato Energy is an oil and gas exploration and development company located in Farmin g significant oil and gas deposits. The firm is considering two different drilling opportunities tha Shale region of central Texas and the other is in the Gulf Coast. The Barnett Shale project req adat i Data Table Year Barnett Shale Gulf Coast $(4,600,000) 1,840,000 1,840,000 (920,000) 1,840,000 1,440,000 1,440,000 $(1,200,000) 900,000 900,000 450,000 120,000 S 1 at 2 3 in al 4 6 1,440,000 800,000 400,000 90,000 7 10 Print Done box and then click Check