A company paid $2,000,000 in year 1 for the mining site and spent an additional $500,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately. four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: Cost Probability 1 $200,000 20% 2 500,000 45% 3 800,000 35% To aid extraction, Falcon purchased some new equipment on July 1, year 1, for $150,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 10%. PV factor (n=4, 1-10%) is .68301. Required: What is the Accretion Expense in year 1? (Round to nearest dollar)
A company paid $2,000,000 in year 1 for the mining site and spent an additional $500,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately. four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: Cost Probability 1 $200,000 20% 2 500,000 45% 3 800,000 35% To aid extraction, Falcon purchased some new equipment on July 1, year 1, for $150,000. After the copper is removed from this mine, the equipment will be sold. The credit-adjusted, risk-free rate of interest is 10%. PV factor (n=4, 1-10%) is .68301. Required: What is the Accretion Expense in year 1? (Round to nearest dollar)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A company paid $2,000,000 in year 1 for the mining site and spent an additional $500,000 to
prepare the mine for extraction of the copper. After the copper is extracted in approximately
four years, the company is required to restore the land to its original condition, including
repaving of roads and replacing a greenbelt. The company has provided the following three
cash flow possibilities for the restoration costs:
Cost Probability
1 $200,000 20%
2 500,000 45%
3 800,000 35%
To aid extraction, Falcon purchased some new equipment on July 1, year 1, for $150,000.
After the copper is removed from this mine, the equipment will be sold. The credit-adjusted,
risk-free rate of interest is 10%. PV factor (n=4, 1=10%) is .68301.
Required: What is the Accretion Expense in year 1? (Round to nearest dollar)
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