The possible payoffs from Ms. Ketchup’s projects (see Example 18.1, pages 455 & 456 )

have not changed but there is now a 40% chance that Project 2 will pay off $24 and a 60%

chance that it will pay off $0.

a. Recalculate the expected payoffs to the bank and Ms. Ketchup if the bank lends the present value of $10. Which project would Ms. Ketchup undertake?

b. What is the maximum amount the bank could lend that would induce Ms. Ketchup to take Project 1?

AppendixLO1