Consider P. Ltd, a one-asset firm with no liabilities. Assume that the asset will generate end-of-year cash flows of $300 each year for two years and then will have zero value. The interest rate in the economy is 10%. You should show all your works.
a. Prepare the income statement for the second year. What information should be on the income statement if we cannot get the certainty condition?
b. Prepare the balance sheet at the end of the second year for the company. The company pays no dividend.