ARO related expense related, interest, expected, effective, liability

sabina

A company expects to use a landfill site for 10 years at the end of which it will have to cap and close the landfill at an expected cost of $2.8 million. Given that the effective interest rate is 8%, the company's total ARO related expenses in Year 2 are closest to:

A. $250,714
B. $121,020
C. $224,776

Answer: A.

Present value of liability= $1,296,941
Depreciation= $1,296,941/10 = $129,694
Carrying value of liability in Year 2= $1,400,697
Accretion Expense in Year 2= $112,055

Can someone explain why they used $121,020 instead of $112,055?



Edited 1 time(s). Last edit at Wednesday, November 24, 2010 at 06:55PM by notic4lyf.