Company 6 is facing two investment opportunities shown in the following table. Project A Project B Probability Investment $60m $60m Payoff in State 1 $70m $20m 50% Payoff in State 2 $90m $130m 50% Assume that either project can be financed with debt. Company 6's shareholders and debtholders are risk-neutral. The rate of interest is nil. Shareholders have limited liability. Required (a) Show that Project A is the safest project and has the highest net present value. (3 marks) (b) Assume that debtholders believe that Project A is selected, what is the face value of debt that the firm will have to promise to repay? (2 marks) C (c) Would Company 6's managers who would maximise shareholders' return really invest in Project A after having obtained a loan? Explain. (4 marks) (d) If debtholders believe that Company 6's managers would invest in Project B after having obtained the loan, what would be the face value of the debt that the debtholders would demand? (4 marks) Using Company 6 as an example, illustrate the risk-shifting problem identified by Jensen and Meckling (1996)