Assume a simple one-period world (today, and next year) where next year, a companys cash flows will either be $500,000 (with 60% probability) or $125,000 (with 40% probability). The firm owes the lenders $250,000 next year. For simplicity, assume no interest rates and no taxes. Now assume a risk free project comes along. It costs $90,000 now, and will produce a certain cash flow of $160,000 next year. Will the shareholders wish to fund this project with equity?

a) no, shareholders will not want to fund this because if they did, they would be worse off by $50,000

b) no, shareholders will not want to fund this because if they did, they would be worse off by $20,000

c) no, shareholders will not want to fund this because if they did, they would be worse off by $110,000

d) yes, shareholders will want to fund this because if they did, they would be better off by $50,000

e) yes, shareholders will want to fund this because if they did, they would be better off by $20,000

f) yes, shareholders will want to fund this because if they did, they would be better off by $110,000