4. Consider a firm with existing assets and debt outstanding with face value of $40. The assets in place are primarily oil reserves, which provide a random cash flow of $10 if there is a world oil glut and $90 if there is an oil shortage. A glut and a shortage occur with equal probability. The interest rate is r=0. a. What is the value of equity, debt, and the total firm? b. Suppose the firm can invest in a project that provides $30 in any state of nature and costs $20. i. If shareholders finance the investment from their own pocket, is the project undertaken? You must calculate the values of debt and equity with and without the project. State the underlying intuition. ii. Repeat part (i) assuming the project is financed with new subordinated debt. iii. Repeat part (i) assuming the project is financed with new senior debt. iv. Summarize the effects of the form of financing on the underinvestment problem.