(15 pt) Pine Corporation can take on Project A or Project B, but not both. An initial investment of $50m is required. The cash flow in one year depends on the economy as shown in the following table. There are no taxes. Pine's Cost of Capital is 10%. Pine has no other investment projects.

Economy	Probability	Project A Cash Flow	Project B Cash Flow
Bad	0.4	$350m	$250m
Good	0.6	$400m	$450m

(i) If Pine's objective is to maximize firm value, which project should the company pick? (5 pt)

(ii) If the initial investment of $50m has to come from equity holders, and Pine has to pay debt holders $300m in one year, answer the following questions:

(3 pt) What is debt holders expected payoff in one year if the company picks Project A? What if the company picks Project B? Which one is higher?

(3 pt) What is equity holders expected payoff in one year if the company picks Project A? What if the company picks Project B? Which one is higher?

(2 pt) From equity holders perspective, what is the NPV of Project A? and NPV of Project B? Which project would shareholders prefer if they are only concerned about maximizing their own wealth instead of firm value?

(2 pt) Why does your answer in (c) above differ from your answer in (i)

: Pine has little cash on the balance sheet, so the payment to debt holders will have to come entirely from the cash flows generated by Project A or Project B.