Question

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?



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  • CreatedSeptember 10, 2014
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