1. A company is considering an investment project that generates a cash flow of $1,400,000 next year if the economy is favorable but generates only $400,000 if the economy is unfavorable. The probability of favorable economy is 55% and of unfavorable economy is 45%. The project will last only one year and be closed after that. The cost of investment is $900,000 and the company plans to finance the project with $300,000 of equity and $600,000 of debt. Assuming the discount rates of both equity and debt are 0%. If the company invests in the project, what is the expected cash flow to the company's shareholders?

2.

$29.37 million $28.56 million $27.73 million $26.81 million $30.49 million