TanVan Corp. operates under conditions of uncertainty. The firms' cash flows depend on the state of...

 

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TanVan Corp. operates under conditions of uncertainty. The firms' cash flows depend on the state of the economy. The odds that the economy will be in a good condition are 75%. If the economy is good the expected cash flows are $1,500; and if the economy is poor the expected cash flows are reduced to $1,100. After two years the firm will stop operations and all assets will have zero value. The interest rate in the economy is 7%. Prepare the income statement and balance sheet for the firm after 1 year if it experiences a bad year. Assume the firm is financed with 100% equity and that it doesn't pay a dividend. TanVan Corp. operates under conditions of uncertainty. The firms' cash flows depend on the state of the economy. The odds that the economy will be in a good condition are 75%. If the economy is good the expected cash flows are $1,500; and if the economy is poor the expected cash flows are reduced to $1,100. After two years the firm will stop operations and all assets will have zero value. The interest rate in the economy is 7%. Prepare the income statement and balance sheet for the firm after 1 year if it experiences a bad year. Assume the firm is financed with 100% equity and that it doesn't pay a dividend.

Answer rating: 100% (QA)

Solution If company face bad year in after first year the e... View the full answer