Santa Cruz Oil Is Obligated to the State of Nevada

Essay

Santa Cruz Oil is obligated to the State of Nevada to restore leased land to its original condition after its oil drilling activities are completed in four years. The cash flow possibilities are probabilities for the restoration costs in four years are as follows:
$\begin{array}{rc}\text { Cash Outflow }&\text { Probability }\\\text { \$20 million } & 20 \% \\30 \text { million } & 40 \% \\40 \text { million } & 30 \% \\50 \text { million } & 10 \%\end{array}$