Question

A company pays $20,000 for the rights to a well with 5 million gallons of water. If the company extracts 250,000 gallons of water in the first year, what is the total depletion in year 1? a. $ 400 b. $1,000 c. $1,250 d. $5,000

Answer 1

Answer:

b. $1,000

Explanation:

In this question we have to apply the unitary method which is shown below:

Given that

Payment = $20,000

Number of gallons of water = 5,000,000

Extracts = 250,000 gallons

So, the total depletion would be

= (Payment × extracted gallons) ÷ (Number of gallons of water)

= ($20,000 ×  250,000 gallons) ÷ (5,000,000 gallons)

= $1,000