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(2.5) A corporation must decide between two mutually exclusive projects. Both projects require an initial outlay of 100 million euro, and they generate cash flows
(2.5) A corporation must decide between two mutually exclusive projects. Both projects require an initial outlay of 100 million euro, and they generate cash flows that are independent of the growth of the economy. Project A has an equal probability of four gross payoffs: 80 million euro, 100 million euro. 120 million euro or 140 million euro. Project B has a 50:50 chance of paying either 90 million euro or 130 million euro. Assuming that shareholders are all risk averse, show that they unanimously prefer Project B to Project A
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