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Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.3 million. After the silver is extracted in approximately five years,
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.3 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $570,000, 20% probability; (2) $620,000, 50% probability; and (3) $720,000, 30% probability. The company's credit-adjusted, risk-free rate of interest is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What is the initial cost of the silver mine? (Do not round intermediate calculations. Enter your answers in whole dollars.) Table or calculator function: n = i = % Restoration Costs: Acquisition, exploration and development Initial Cost: 0
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