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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
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 company. Project A has an equal probability of four gross payoffs; 80 million, 100 million, 120 million, 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 uninamously prefer project B to project A
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