Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 48

Early in 2015, the Atlantic Mining Company began operation at its West Virginia mine. The mine had been acquired at a cost of $8,900,000 in 2013, and is expected to contain 4 million tons of silver and to have a residual value of $ 1,500,000 (once the silver is depleted). Before beginning mining operations. The company installed equipment at a cost of $2,500,000. This equipment will have no economic usefulness once the silver is depleted. Therefore, depreciation of the equipment is based upon the estimated number of tons of ore produced each year. Ore removed from the West Virginia mine amounted to 550.000 tons in 2015 and 688,000 tons in 2016.
(a) Compute the per ton depletion rate of the mine and the per ton depreciation rate of the mining equipment.
(b) Determine the depletion expense for the mine and the depreciation expense for the mining equipment.