Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $7.3 million. After the silve is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $670,000, 10% probability: (2) $720,000, 50% probability, and (3) $820,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 5%. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $766,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollars not in millions of dollars. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Liability
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $7.3 million. After the silve is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $670,000, 10% probability: (2) $720,000, 50% probability, and (3) $820,000, 40% probability. The company's credit-adjusted, risk-free rate of interest is 5%. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $766,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollars not in millions of dollars. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Liability
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 12P: After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide...
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