1.Your assets have an equal chance of being worth either $1,500 or $800 at year's end. Your debt is $1,000 and due at the end of the year. Now suppose you substitute your current assets for risker assets that have the same expected value but a wider dispersion. The risker assets now have equally likely payoffs of $2,000 and $900. With the same expected value, the asset substitution renders a zero NPV. Does this mean that you are better off?

2.A firm has just accepted the project with a positive NPV. The project has the following cash flows (in millions):