A simplified example of the calculation of a resource rent tax is shown in Table 8.2, in which the threshold rate of return is set at 20 percent and the tax rate at 50 percent. All cash receipts (sales revenue and proceeds from the sale of assets) and expenses (exploration, capital and operating expenditures but not financing costs) are accounted as soon as they are incurred to derive annual net cash flow.15 Net cash flows are compounded at the threshold rate to adjust nominal values to present values. The point at which accumulated net cash flow after compounding become positive represents the point at which a 20 percent rate of return has been achieved. The accumulation process stops at this point and subsequent positive cash flows are subject to tax at a rate of 50 percent. If in any later year the net cash flow is negative, the compounding process recommences until the accumulated value turns positive again. This situation could arise, for example, in the case of a transition from open pit to underground mining to follow a mineral deposit deeper, or the introduction of enhanced recovery wells in an ageing oil field, which in each case would require a substantial injection of new capital.