On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chemnical refinery. The accountants estimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) would be $3.540 m. Chemical industry expert Josiah Carberry forecasts a 2.7% rate of inflation for the necessary work, and that a contractor would include $620 K MRP to lock in the price of doing the work twenty years in the future. The risk-free rate (rF) was 2.2 % and NNDPP's credit standing commanded a 310 bps spread to rF. Sarah Verhovek, the NNDPP controller, calculates ARO liabilities using continuous discounting and the 30/360 convention. For the ARO, she will book a Cr. of ($ m) O 2635

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chermical refinery. The accountants
estimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) would
be $3.540 m. Chemical industry expert Josiah Carberry forecasts a 2.7% rate of inflation for the necessary
work, and that a contractor would include $620 K MRP to lock in the price of doing the work twenty years in
the future. The risk-free rate (rF) was 2.2 % and NNDPP's credit standing commanded a 310 bps spread to rF.
Sarah Verhovek, the NNDPP controller, calculates ARO liabilities using continuous discounting and the 30/360
convention. For the ARO, she will book a Cr. of ($ m)
O 2.635
O 2.236
O 2.553
O 2.474
O 3.450
Transcribed Image Text:On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chermical refinery. The accountants estimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) would be $3.540 m. Chemical industry expert Josiah Carberry forecasts a 2.7% rate of inflation for the necessary work, and that a contractor would include $620 K MRP to lock in the price of doing the work twenty years in the future. The risk-free rate (rF) was 2.2 % and NNDPP's credit standing commanded a 310 bps spread to rF. Sarah Verhovek, the NNDPP controller, calculates ARO liabilities using continuous discounting and the 30/360 convention. For the ARO, she will book a Cr. of ($ m) O 2.635 O 2.236 O 2.553 O 2.474 O 3.450
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