Problem 6-15 years. prairie state after it ceases mining operations at the site.
ID: 2544255 • Letter: P
Question
Problem 6-15 years. prairie state after it ceases mining operations at the site. To properly account for the mine, Larkspur 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 Larkspur's books. There is no active market for retirement obligations such as these, but Larkspur 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 Restorati Probability Assessment 1096 30% 5096 10% Estimated Cash Outflow $14,200 21,250 23,820 0,810 Click here to view factor tables What is the estimated fair value of Larkspur's asset retirement obligation? Larkspur 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 o decimal places, e.g. 458,581.) Estimated fair value of Larkspur's asset retirement obligation sExplanation / Answer
Probable Restoration Estimated Cash Outflow for each Year
=0.10 * $ 14,200 +0.30 * $ 21,250 +0.50 * $ 23,820 +0.10 * $ 30,810
= $ 1,420 + $ 6,375 + $ 11,910 + $ 3,081
= $ 22,786
Estimated fairvalue of Larkspur Asset Retirement Obligation
= Probable Restoration Estimated Cash Outflow each year * Total Pv factor of 5% for three years
= $ 22,786 * 2.72
= $ 68,358