Jackpot Mining is obligated to the State of California to restore leased land to its original condition after its mining activities are completed in six years. The cash flow possibilities and probabilities for the restoration costs in six years are as follows:
$\begin{array}{cc}
\text { Cash Outflow } & \text { Probability } \
\hline \$ 5 \text { million } & 10 \% \
10 \text { million } & 30 \% \
12 \text { million } & 40 \% \
15 \text { million } & 20 \%
\end{array}$
The company's risk-free interest rate is 4%.
Required:
Calculate the liability that Jackpot must record at the beginning of the project for the restoration costs.

Question

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The Answer of Jackpot Mining is obligated to the State of California to restore leased land to its original condition after its mining activities are completed in six years. The cash flow possibilities and probabilities for the restoration costs in six years are as follows:
$\begin{array}{cc}
\text { Cash Outflow } & \text { Probability } \
\hline \$ 5 \text { million } & 10 \% \
10 \text { million } & 30 \% \
12 \text { million } & 40 \% \
15 \text { million } & 20 \%
\end{array}$
The company's risk-free interest rate is 4%.
Required:
Calculate the liability that Jackpot must record at the beginning of the project for the restoration costs.

Jackpot Mining Is Obligated to the State of California to Restore