QC Ltd. operates under ideal conditions of uncertainty. On January 1, 2008, it purchased a capital asset that will last for two full years and then will be retired with zero salvage. The purchase price was financed with an issue of common stock. QC Ltd. plans to pay no dividends until after the end of 2009. The interest rate in the economy is 6%.

QC Ltd. identifies two states of nature: Net cash flows from the asset will be $100 in 2008 and $200 in 2009 (the high state) or $100 in 2008, and $50 in 2009 (the low state). The objective probability of the high state is 0.60.

All cash flows are received at their respective year-ends. At the end of year 2 it becomes known that the high state is realized.

Required

a. How much did QC Ltd. pay for its capital asset? Show calculations.

b. Prepare, in good form, an income statement for QC Ltd. for the second year of operations, that is, 2009.

c. Prepare, in good form, a balance sheet for QC Ltd. as at the end of 2009 operations (before any dividend payments).

Note: In the following problem, state probabilities are not independent over time. Part b requires calculations not illustrated in the text.