A firm has outstanding equity and bonds. Today, (time 0) the firm has $300 in cash and no other assets with market value. Next period (time 1), the firm has a maturing bond issue that requires a $400 payment to bondholders. The firm has no other debts. Assume that the Absolute Priority Rule holds in bankruptcy.

Suppose the firm has only one project available that requires a $300 investment (all the firms cash) at Time 0. The project is risk-free and will generate a cash flow of $357 with certainty at time 1. The risk-free rate is 2%.

a. What is the projects NPV? (Enter your answer without the dollar sign. Round your final answer to the nearest dollar.)

Project NPV

$

b. If the firm accepts the project, what is the bondholders' expected cash flow at time 1. What is the stockholders' expected cash flow at time 1?( Enter your answer without the dollar sign. Round your final answer to the nearest dollar.

Bondholders' expected cash flow

$

Stockholders' expected cash flow