Utah Mining Co. (UMC) paid $200 million for the right to exp…
Utah Mining Co. (UMC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Utah. To obtain the rights, UMC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. UMC incurred exploration and development costs of $60 million on the project. UMC 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: (PV of $1, PVA of $1) (Use appropriate factor(s) from the tables provided.)Cash Outflow Probability$10million 60% $30million 40% The asset retirement obligation (rounded) that should be recognized by UMC at the beginning of the extraction activities is: