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A company is considering the following two projects: Project A requires an investment of 100 at t-0 and another investment of 100 at t1 A

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A company is considering the following two projects: Project A requires an investment of 100 at t-0 and another investment of 100 at t1 A cash X will be generated at t-l if and only if both investment have been made. Project B requires an investment of 100 at t-0 and another investment of 100 at t1 A cash Y will be generated at tl if and only if both investment have been made. The value of X and Y are contingent on the state of the industry at t=1 State of industry X Bad Market return (%) 20 -4 400 90 Good 500 20 Let the risk free interest rate be 5% and the two projects be mutually exclusive. What should be the decision if (a) The second investment is paid before the state of industry at t-l is known. (b) The second investment is paid after the state of industry at 1 is known. A company is considering the following two projects: Project A requires an investment of 100 at t-0 and another investment of 100 at t1 A cash X will be generated at t-l if and only if both investment have been made. Project B requires an investment of 100 at t-0 and another investment of 100 at t1 A cash Y will be generated at tl if and only if both investment have been made. The value of X and Y are contingent on the state of the industry at t=1 State of industry X Bad Market return (%) 20 -4 400 90 Good 500 20 Let the risk free interest rate be 5% and the two projects be mutually exclusive. What should be the decision if (a) The second investment is paid before the state of industry at t-l is known. (b) The second investment is paid after the state of industry at 1 is known

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