Situation 2 : The $20 million question
The Hard Rock Mining Company has just completed the first year of operations at its new strip mine, the Lone-some Doe. Hard Rock spent $10 million for the land and $20 million in preparing the site for mining operations. The mine is expected to operate for 20 years. Hard Rock is subject to environmental statutes requiring it to restore the Lonesome Doe mine site on completion of mining operations.
Based on its experience and industry data, as well as current technology, Hare Rock forecasts that restoration will cost about $10 million when it is undertaken. Of those costs, about $4 million is for restoring the topsoil that was removed in preparing the site for mining operations (prior to opening the mine); the rest is directly proportional to the depth of the mine, which in turn is directly proportional to the amount of ore extracted.