The annual depletion on cost basis

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Butcher Coal Company bought a coalmine in East Tennessee for $4M. It is expecting to excavate 180,000 tons of coal every year for the next 20 years. The gross revenue will be $9 per ton. The accounting department expects the net revenue will be $3.50 per ton after all expenses.

Determine i. the annual depletion on a cost basis.

Hints: RR in equation is 3600K.The textbook solution for the similar problem doesn’t show this calculation because the ratio FC/RR is just 1/(number of years) for all years when the rate of excavation is constant.

Reference no: EM131292248

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