Assuming stand alone loss carry forward economic analysis

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Mineral rights to a gold/silver mineral property can be acquired by a company for a $500,000 bonus cost at time zero. A mineral development cost of $2,000,000 and mine equipment cost of $1,000,000 will be incurred at time zero. Year one production will be 200,000 tons of ore from initial reserves estimated to be 1,000,000 tons of ore, with net smelter return value of the ore estimated to be $18 dollars per ton. Royalties are 16% of gross income. Operating costs in year 1 are estimated to be $200,000. Assume 7-year life MACRS depreciation starts in year 1 using the half-year convention. Expense 70% of the mine development cost at time zero. Deduct the remaining 30% by amortization with a six month (6/60) deduction at time zero. Assume a 40% effective income tax rate and determine the estimated cash flow during time zero and year one for a comporation, assuming "stand alone" loss carry forward economic analysis.

Reference no: EM132006136

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