Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Mont

Question

3 years ago

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Montana Mining Co. (MMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Mont

ana. To obtain the rights, MMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. MMC incurred exploration and development costs of $60 million on the project.MMC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows:Cash Outflow Probability$ 10 million 60 %$ 30 million 40 %The asset retirement obligation that should be recognized by MMC at the beginning of the extraction activities is: ______

Business

1 answer:

algol [13] · Answer 1 · 2022-02-04T06:52:16+03:00

Answer:

The beginning of the extraction activities is 14.7 million.

Explanation:

Please find the detailed answer as follows:

Present Value of Cash Flows Expected From the Project/Asset Retirement Obligation at the Beginning = (.60*10 + .40*30)*PVIF(7%,3 Years) = (.60*10 + .40*30)*.81630 = 14.7 million .