NA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber is recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold for the next 2 years because an environmental impact statement must be completed before harvesting can begin. In years 3 to 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%.
(a) Determine the depletion amount in year 2 by the cost depletion method.
(b) Determine the depletion amount in year 5 by the percentage depletion method.