SA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber are recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold next year because an environmental impact statement must be completed before harvesting can begin. In years 2 through 10, however, the company expects to remove 20 million board feet per year. The inflation rate is 8%, and the company’s MARR is 10%. Determine the depletion amount in years 1 and 2 by the cost depletion method.
SA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber are recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold next year because an environmental impact statement must be completed before harvesting can begin. In years 2 through 10, however, the company expects to remove 20 million board feet per year. The inflation rate is 8%, and the company’s MARR is 10%. Determine the depletion amount in years 1 and 2 by the cost depletion method.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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SA Forest Resources purchased forest acreage for
$500,000 from which an estimated 200 million board
feet of lumber are recoverable. The company will sell
the lumber for $0.10 per board foot. No lumber will
be sold next year because an environmental impact
statement must be completed before harvesting can
begin. In years 2 through 10, however, the company
expects to remove 20 million board feet per year. The
inflation rate is 8%, and the company’s MARR is
10%. Determine the depletion amount in years 1 and
2 by the cost depletion method.
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