Question

A new gold mining project is expected to operate for 8 years and will require development costs of $200 million at time zero, $160 million at the end of year 1, and $43 million at the end of year 2. Assuming that 100% of the capital costs are to be depreciated using MACRS (.5 year convention) for mining equipment, determine the total allowable depreciation deduction for each year for the project for the entire 0-8 years

Answer 1

Note:

Development cost spent in Year 0 can be claimed using MACRS 5 for next 6 years (1-6 years)

Development cost spent in Year 1 can be claimed using MACRS 5 for next 6 years (2-7 years)

Development cost spent in Year 2 can be claimed using MACRS 5 for next 6 years (3-8 years)