Problem 6-15

Sheridan Mining Company recently purchased a quartz mine that it intends to work for the next 10 years. According to state environmental laws, Sheridan must restore the mine site to its original natural prairie state after it ceases mining operations at the site. To properly account for the mine, Sheridan 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 Sheridans books. There is no active market for retirement obligations such as these, but Sheridan 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.

Restoration Estimated Cash Outflow			Probability Assessment
$15,780			10%
23,430			30%
22,610			50%
31,150			10%

What is the estimated fair value of Sheridans asset retirement obligation? Sheridan 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 0 decimal places, e.g. 458,581.)

Estimated fair value of Sheridans asset retirement obligation__________

$