Lindsey Purchased a Uranium Interest for $10,000,000 on January 3

question 41

Essay

Lindsey purchased a uranium interest for $10,000,000 on January 3, 2018, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018. Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000. Determine her depletion deduction for 2018.

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Definitions:

Risk-free Rate

The risk-free rate is the theoretical return on an investment with zero risk, often represented by the yield on short-term government securities.

CAPM

Capital Asset Pricing Model; a model that describes the relationship between systematic risk and expected return for assets.

Holding Period

The duration of time an investment is held before it is sold, impacting the capital gains tax implications.

Risk Aversion

A preference to minimize uncertainty and avoid risk in investment decisions.