For 20 million Ross Adams Mining acquired a tract of
For $20 million, Ross Adams Mining acquired a tract of land containing a large deposit of anthracite coal. Ross Adams believes the most economical way to extract the coal is to strip- mine the site. The company is required by environmental regulations to restore the land after it has extracted the coal to a condition suitable for recreational use and—given the intended mining method—estimates restoration costs to be $6 million. Ross Adams’ mining engineers estimate that the site contains 4 million tons of recoverable coal and that it will take approximately four years to complete mining activities. Once restored, the estimated value of the land amounts to $1 million. Ross Adams Mining’s credit-adjusted risk free interest rate is 7%.

Required:
What should be the depletion rate per ton of coal extracted from this mine?

Membership TRY NOW
  • Access to 800,000+ Textbook Solutions
  • Ask any question from 24/7 available
    Tutors
  • Live Video Consultation with Tutors
  • 50,000+ Answers by Tutors
OR
Relevant Tutors available to help