Royal Queen Petroleum has the following data for its Bayou Field: Property cost (acquisition cost)....... $ 60,000 Drilling cost (one well)................... 280,000 Estimated selling cost per bbl..................80 Estimated lifting cost per bbl...................26 State severance tax..................................5% Royalty interest...................................12.5% The company is considering two drilling plans which are estimated to have the following production: Well A: 600 bbl per month. Completion cost, $500,000. Well B: 1,000 bbl per month. Completion cost, 800,000.

Required: a. Determine the number of months needed for payout on each plan.

b. If the company depends on the payback method for its investment decision, which plan will be more preferred?