Chapter 11 P In four the following three cash flow possibilities for the restora
ID: 2541077 • Letter: C
Question
Chapter 11 P In four the following three cash flow possibilities for the restoration costs (FV of $1. PV of $1. EVA of S1, PVA ot St years, the company is required to restore the land to Its original EVAD of $1 and PVAD of $D (Use appropriate factoris) from the tables provided 10 $370,000 2470,000 670,000 To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $133.000. Afer the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $26,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 15%. The company expects to extract 10.7 milion pounds of copper from the mine. Actual production was 2 3 million pounds in 2018 and 3.7 million pounds in 2019. e depletion and depreciation on the mine and mining equipment for 2018 and 2019. The u on method is used to calculate depreciation. (The expected format for rounding is presented in the appropriate rows of the table. Round your final answers to nearest whole dollar) 45% Possibility 2 Possibility 3 670,000Explanation / Answer
1-
restoration cost
cash outflow
probability
probable restoration cost
possibility 1
370000
25%
92500
possibility 2
470000
45%
211500
possibility 3
670000
30%
201000
total restoration cost
505000
present value of total of probable restoration cost
505000/(1.15)^4
288735.4
2-
cost of copper mine
mining site
1350000
development cost
670000
present value of total of probable restoration cost
288735.4
cost of copper mine
2308735
3-
depletion expense (mine
2018
2019
depletion per pound
2308735/10700000
0.21577
0.21577
pounds extracted
2300000
3700000
depletion expense
depletion per pound*pounds extracted
496270.1
798347.6
4-
depletion expense (mining equipment)
2018
2019
depreciation per pound
(133000-26000)/10700000
0.01
0.01
pounds extracted
2300000
3700000
depreciation expense
depreciation per pound*pounds extracted
23000
37000
1-
restoration cost
cash outflow
probability
probable restoration cost
possibility 1
370000
25%
92500
possibility 2
470000
45%
211500
possibility 3
670000
30%
201000
total restoration cost
505000
present value of total of probable restoration cost
505000/(1.15)^4
288735.4
2-
cost of copper mine
mining site
1350000
development cost
670000
present value of total of probable restoration cost
288735.4
cost of copper mine
2308735
3-
depletion expense (mine
2018
2019
depletion per pound
2308735/10700000
0.21577
0.21577
pounds extracted
2300000
3700000
depletion expense
depletion per pound*pounds extracted
496270.1
798347.6
4-
depletion expense (mining equipment)
2018
2019
depreciation per pound
(133000-26000)/10700000
0.01
0.01
pounds extracted
2300000
3700000
depreciation expense
depreciation per pound*pounds extracted
23000
37000
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