Western Carolina Coal Co. expects to produce 125,000 tons of coal annually for 15 years. The deposit cost $3M to acquire; the annual gross revenues are expected to be $9.50 per ton, and the net revenues are expected to be $4.25 per ton.

a) Compute the annual depletion on a cost basis.

b) Compute the annual depletion on a percentage basis.

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Answers:

a) $200,000

b) $118,750