Jackpot Mining Company operates a copper mine in central Montana. The company paid $$1,000,000$ in $2024$ for the mining site and spent an additional $$600,000$ 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:

Note: Use tables, Excel, or a financial calculator. $($FV of $$1,$ PV of $$1,$ FVA of $$1,$ PVA of $$1,$ FVAD of $$1$ and PVAD of $$1)$

Cash Outflow Probability

$1$ $ $300,00025\%$

$2400,00040\%$

$3600,00035\%$

To aid extraction, Jackpot purchased some new equipment on July $1,2024,$ for $$120,000.$ After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $$20,000.$ There will be no residual value for the copper mine. The credit$-$adjusted risk$-$free rate of interest is $10\%.$

The company expects to extract $10$ million pounds of copper from the mine. Actual production was $1\mathrm{.}6$ million pounds in $2024$ and $3$ million pounds in $2025.$

Required:

$1.$ Compute depletion and depreciation on the mine and mining equipment for $2024$ and $2025.$ The units$-$of$-$production method is used to calculate depreciation.

Answer rating: 100% (QA)

Requirement 1 Depletion and Depreciation Calculations Depletion Calculatio... View the full answer