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Old Tucson Corporation (OTC) paid $200 million for the right to explore and extract rare...

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Accounting

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Old Tucson Corporation (OTC) paid $200 million for the right to explore and extract rare metals from land owned by the state of Texas. To obtain the rights, OTC agreed to restore the land to a suitable condition for other uses after its exploration and extraction activities. OTC incurred exploration and development costs of $60 million on the project. OTC has a credit-adjusted risk free interest rate is 7%. It estimates the possible cash flows for restoring the land, three years after its extraction activities begin, as follows: (PV of $1. PVA of $1) (Use appropriate factor(s) from the tables provided.) Cash Outflow Probability $10 million $30 million 40% 60% The natural resource asset (rounded) that should be recognized by OTC at the beginning of the extraction activities is: Multiple Choice $278 million $2747 million

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