Consider a one-year world with perfect capital markets in which the interest rate is 10 percent. Suppose a firm has \($12\) million in cash. The firm invests \($7\) million today, and \($5\) million is paid to shareholders. The NPV of the firm’s investment is \($3\) million. All shareholders are identical.

a. How much cash will the firm receive next year from its investment?

b. Suppose shareholders plan to spend \($10\) million today.

(i) How can they do this?

(ii) How much money will they have available to spend next year if they follow your plan?