Ltd. operates under ideal conditions of certainty. It has just bought a capital asset for

$3,100, which will generate $1,210 cash flow at the end of one year and $2,000 at the

end of the second year. At that time, the asset will be useless in operations and P Ltd.

plans to go out of business. The asset will have a known salvage value of $420 at the end

of the second year. The interest rate in the economy is constant at 10% per annum.

P Ltd. finances the asset by issuing $605 par value of 12% coupon bonds to yield

10%. Interest is payable at the end of the first and second years, at which time the bonds

mature. The balance of the cost of the asset is financed by the issuance of common shares

Please complete the tables for year 2 (the orange color cells) , make sure that the total asset equals to total liabilities and equity. Please write clearly, and explain how you got the numbers,

Thank you

Income statements for years ended at t=1 and t=2 Cash flows and present values for capital asset and bond Year 2 Capital asset: Cash inflows Present value Year 1 1,210.00 1,340.00 72.60 (202.60) t=0 3,100.00 3,100.00 t=1 1,210.00 2,200.00 t=2 2,420.00 Revenue Depreciation Interest expense Net income for year Bond: Cash outflows Present value 605.00 626.00 72.60 616.00 Balance sheets as of t=0, t=1, and t=2 t=0 t=1 t=2 Stock issue 2,474.00 Cash Capital asset (net) Total assets 1,137.40 2,200.00 3,337.40 Bonds Outstanding 616.00 Shareholder's equity Capital stock Retained earnings Total liabilities and SE 2,474.00 247.40 3,337.40