Simpson Mining is obligated to restore leased land to its original condition after its excavation activities are completed in three years. The cash flow possibilities and probabilities for the restoration costs in 3 years are as follows:
Cash overflow Probability
$120,000 40 %
170,000 40%
220,000 20 %
The company's credit-adjusted risk-free interest rate is 5%. The liability that Simpson must record at the beginning of the project for the restoration costs is:
a. $146,853
b. $138,214
c. $160,000
d. $190,045
Answers: 1
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