2. (8) Assume a two-period world with no uncertainty. Alpha Inc. has $1,000 of earnings (X1) for the fiscal year which has just ended. The firm has the following set of investment projects. The risk-free rate of interest is 20% at which investors, as well as the firm, can lend and borrow freely. The firm has 2 shares outstanding: shareholders K and L own one share each. Assume also that K wants to spend 350 during the current period for consumption while L wants to spend only 100 . a. If the firm chooses to invest in projects A and B only, and distributes the rest of the earnings as dividends (i.e., per share dividend is $350 ), what will be the maximum consumption available to shareholder K? How can he obtain that? Repeat the same for shareholder L. b. If the firm chooses to invest in projects A, B, and C, and distributes the rest of the earnings as dividends, what will be the maximum level of consumption for K? And for L? And how? c. Repeat the same exercise assuming that the firm chooses to invest in projects A, B, C, and D. d. In (b), will your answer change with regard to the maximum consumption if the firm invests in projects A, B, and C and makes a financial investment of $300 at the rate of 20% ? 2 e. If the firm wants to maximize the market value of the firm, which projects should it undertake? Find the optimal level of dividends if there is any