Another firm ABC has debt with face value of 80, a fixed asset worth 30, and cash 70.The asset is risky, it yields 10 in State L and 50 in State H with equal probabilities. The firm may also invest in a new project that requires an investment of 70 and yields 20 in State L and 100 in State H.

(a) Construct the balance sheet without the project.

(b) Construct the balance sheet with the project.

(c) Would a shareholder-oriented manager do the project?

(d) Would debt holders consent to the project?