Question

Wildhorse Mining Company recently purchased a quartz mine that it intends to work for the next 10 years. According to state environmental laws, Wildhorse must restore the mine site to its original natural prairie state after it ceases mining operations at the site. To properly account for the mine, Wildhorse must estimate the fair value of this asset retirement obligation. This amount will be recorded as a liability and added to the value of the mine on Wildhorse's books. There is no active market for retirement obligations such as these, but Wildhorse has developed the following cash flow estimates based on its prior experience in mining- site restoration. It will take 3 years to restore the mine site when mining operations cease in 10 years. Each estimated cash outflow reflects an annual payment at the end of each year of the 3-year restoration period. Restoration Estimated Cash Outflow $15,210 20,130 25,880 27,560 Probability Assessment 10% 30% 50% 10% Click here to view factor tables What is the estimated fair value of Wildhorse's asset retirement obligation? Wildhorse determines that the appropriate discount rate for this estimation is 5%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Estimated fair value of Wildhorse's asset retirement obligation

Answer 1

page 1 Given that Wild hogse mining company gecently purchased that a quagtz mine it intend to wogi fog the next 10 yease. osthe It will take thejee house to Bestogje mine site when mining opegations cease on 10 yeagle Bestogation Estimated Doobability (b) Cashout flow (a) 15,210 20,130 25,880 10•% es esas es Pojoduct (axb) $ 1,521 $ 6,039 $ 12,940 $ 2,456 300% 50% 10% 27,560 Estimated Annual flow $ 23,256

page 2 year Amount poroduct = $ 23,956 Du facto, @ 10.1. 0.90909 0.82645 0.45131 تم 13 $ 23,256 $ 23,256 $ 21,142 $ 19,920 $ 14,443 $ 54,834 Fais value of Retigment obligation at Yea9-10; $ 54,834 Polesent value of Retigiment obilication at Yeasy -o ( Today) will be : $ 54,834 x pu factog (1046,10 yeague) = $ 57,834 x 0.386 - $ 22,324