1. Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $892,250 for extraction rights. A geologist estimates that Santa Fe will recover 10,750 pounds of turquoise. During the current year, Santa Fe extracted 3,225 pounds of turquoise, which it sold for $568,000. What is Santa Fe's cost depletion expense for the current year?
2. A company currently has a debt-equity ratio of 1/2. The debt, which is almost diskless, pays an interest rate of 6% per annum. The expected retum on the common stock is 12%. The firm pays no taxes. What would the expected return on equity be if the firm reduced its debt equity ratio to 1/3?