Jackpot Mining Is Obligated to the State of California to Restore

question 25

Essay

Jackpot Mining is obligated to the State of California 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:
The company's credit-adjusted risk-free interest rate is 4%.
Required:
Calculate the liability that Jackpot must record at the beginning of the project for the restoration costs.
$$\begin{array} { c c } \text { Cash Outflow } & \text { Probability } \\\hline \text { \$5 million } & 10 \% \\10 \text { million } & 30 \% \\12 \text { million } & 40 \% \\15 \text { million } & 20 \%\end{array}$$

---

Definitions:

Risk Optimization

The process of identifying, assessing, and prioritizing risks followed by coordinating and applying resources to minimize, monitor, and control the probability or impact of unfortunate events.

Emerging Companies

are businesses in the early stages of development, usually characterized by innovative products or services and high growth potential.

Equity Capital

The funds raised by a company in exchange for shares of ownership, providing investors with a stake in the company.

Institutional Sources

Organizations or establishments that provide substantial information, data, or funding, often in a formalized or official capacity.