AGC Ltd. operates under ideal conditions of uncertainty with an interest rate of 5% in the economy. The firm is contemplating the purchase of a machine that yields the following payoffs: State 1 probability is 0.6 and state 2 probability is 0.4. These probabilities are constant over time and independent from year to year. At the end of year 3 , the machine is expected to be worthless. Required a. How much should AGC be willing to pay for the machine? Show your calculations. b. Explain why the market value of the machine must equal the amount you calculated in part (a). c. Assume that AGC acquires the machine, financing the purchase entirely with share capital. This is AGC's only asset. Calculate expected net income for year 1. d. Assume that state 2 is realized in year 1. Calculate abnormal earnings for the year. e. AGC pays no dividends in year 1. Prepare, in good form, AGC's balance sheet as of the end of year 1, assuming state 2 realization. AGC Ltd. operates under ideal conditions of uncertainty with an interest rate of 5% in the economy. The firm is contemplating the purchase of a machine that yields the following payoffs: State 1 probability is 0.6 and state 2 probability is 0.4. These probabilities are constant over time and independent from year to year. At the end of year 3 , the machine is expected to be worthless. Required a. How much should AGC be willing to pay for the machine? Show your calculations. b. Explain why the market value of the machine must equal the amount you calculated in part (a). c. Assume that AGC acquires the machine, financing the purchase entirely with share capital. This is AGC's only asset. Calculate expected net income for year 1. d. Assume that state 2 is realized in year 1. Calculate abnormal earnings for the year. e. AGC pays no dividends in year 1. Prepare, in good form, AGC's balance sheet as of the end of year 1, assuming state 2 realization