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Question 10
The balance in the capitalized natural resources deposit
account immediately before beginning removal operations is
$110,000. The date is January 1 of the current (first) year. The
firm is then informed that to comply with environmental
regulations, the site will require reclamation work in four
years costing an estimated $30,000 at that time. 5% is the
appropriate risk adjusted rate of return. One-fourth the total
estimated resource in the site was removed in the first year and
was sold for $70,000. Compute the increase in net income for
the current year from operating the site. Ignore income taxes.
The present value of $1 four years hence at 5% is .8227.
Question 11
A stock option award was granted at the beginning of the
current year (1/1/x4) to three managers. The total shares
granted are 30,000 (10,000 each). The option price and market
price of the $2 par common stock on the grant date was $6.
The options vest Dec. 31, 20x7. Applying an option pricing
model yielded a fair value of $1 per option. Assume all of the
options were exercised when the stock price was $10. What
amount of compensation expense in total is recognized over the
service period and by what amount is the firm's net assets
increased as a result of the option award.
Question 12
Because management has been so successful, key executives
were granted 1,000 stock appreciation rights at the beginning
of 20x4 calling for the difference between the market price of