Colgate Mining is obligated to the State of Texas to restore leased land to its...
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Accounting
- 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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