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DanielleElmas [232]
3 years ago
11

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%

Required:
a. The asset retirement obligation (rounded) that should be recognized at the beginning of the extraction activities is:_______
b. The asset retirement obligation (rounded) that should be reported on the balanace sheet one year after activities begin is: _______
Business
1 answer:
OverLord2011 [107]3 years ago
5 0

Answer:

a. $14.7 million

b. $15.7 million

Explanation:

a.  The asset retirement obligation (rounded) that should be recognized at the beginning of the extraction activities is:

Present Value of Cash Flows Expected From the Project / Asset Retirement Obligation at the Beginning = (0.60*10 + .40*30) * PVIF(7%,3 Years)

=(0.60*10,000,000 + 0.40 * 30,000,000) * 0.81630

= (6,000,000 + 12,000,000) *  0.81630

= 18,000,000 * 0.81630

= $14.7 million

b. The asset retirement obligation (rounded) that should be reported on the balance sheet one year after activities begin is:

Asset Retirement Obligation One Year After = Present Value of Cash Flows Expected From the Project*(1+.07)

= 14,700,000 * (1+0.07)

= 14,700,000 * (1.07)

= $15.7 million

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Answer with Explanation:

There are so many factors affecting the demand for a particular commodity. Four of these are: the price of the complements, the income of buyers, changes in trend and advertisements.

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3 years ago
The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland. It reports
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Answer:

$6,400

Explanation:

Re-write the Question for Easier Understanding

Purchasing   Maintenance   Fabrication  Assembly

$32,000        $18,0000         $96,000       $62,0000

 (No of Purchase Orders)     16                     4

 (Sq Foot of Space)                  3,300               2,700

Find:

Amount of Purchasing Department Expense to be allocated to Assembly.

  • The Question clearly states that Purchasing Department's expenses are allocaated based on the Operating Department's Purchase Order
  • Since total Purchase Order is 20 and Assembly's purchase order is 4
  • Assembly's allocation of Purchasing Expense= Assembly's Purchase Order/ Total Purchase Order × Purchase Department Expense

=Total Purchase Order= Fabrication (16) + Assembly (4)= 20

=Purchase Order for Assemby= 4

=Purchasing Department Expense= $32,000

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Answer:

lower than 4.53%

Explanation:

To determine whether the project is viable, we will use the Internal Rate of Return (IRR). This is the rate at which the Net Present Value (NPV) becomes Nil. In other words, the point at which the discounted net cash outflows are equal to the discounted net cash inflows

In this question, there is one outflow of cash worth $220 million at the start of the project (t=0) and one inflow of $300 million in 7 years.

To calculate IRR, we will use the following formula:.

220 = [300 / ((1+r)^7)]

Solving for r, we find that the interest rate is 4.53%.

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