The Jackson Mining Company paid $1,000,000 for the right to explore for a coal deposit...
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The Jackson Mining Company paid $1,000,000 for the right to explore for a coal deposit on 500 acres of land in Pennsylvania. Costs of exploring for the coal deposit totaled $800,000 and intangible development costs incurred in digging and erecting the mine shaft were $500,000. In addition, Jackson purchased new excavation equipment for the project at a cost of $600,000. After the coal is removed from the site, the equipment will be sold.
Jackson is required by its contract to restore the land to a condition suitable for recreational use after it extracts the coal. The company has provided the following three cash flow possibilities (A, B, and C) for the restoration costs to be paid in two years, after extraction is completed:
The company's credit-adjusted risk-free interest rate is 8%.
What is the total capitalized cost of the coal deposit?
$2,880,000
$2,800,000
$2,797,257
$2,837,037
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