SA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber are recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold next year because an environmental impact statement must be completed before harvesting can begin. In years 2 through 10, however, the company expects to remove 20 million board feet per year. The inflation rate is 8%, and the company’s MARR is 10%. Determine the depletion amount in years 1 and 2 by the cost depletion method.

SA Forest Resources purchased forest acreage for $500,000 from which an estimated 200 million board feet of lumber are recoverable. The company will sell the lumber for $0.10 per board foot. No lumber will be sold next year because an environmental impact statement must be completed before harvesting can begin. In years 2 through 10, however, the company expects to remove 20 million board feet per year. The inflation rate is 8%, and the company’s MARR is 10%. Determine the depletion amount in years 1 and 2 by the cost depletion method.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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