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Colgate Mining is obligated to the State of Texas to restore leased land to its original condition after its mining activities are over in six

  1. Colgate Mining is obligated to the State of Texas to restore leased land to its original condition after its mining activities are over in six years. The cash flow possibilities and probabilities for the restoration costs in six years are as follows:

Cash Outflow

$ 5 million

Probability 10%

10 million

30%

12 million

40%

15 million

20%

The company's credit-adjusted risk-free interest rate is 4%.

Required:

Calculate the liability that must be recorded at the beginning of the project for the restoration costs.

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