Company ABAC's existing assets will generate cash flow of $100m in year 1 and either $120m or $20m in year 2, depending on the state of the economy. The two states are equally likely. The firm has debt of $200m due in year 1 and $80m in year 2. In order to make the ends meet, the firm is considering taking one of the two projects. The two projects are equally costly and mutually exclusive. Project A makes cash flow of $100m in year 1 and zero in year 2, while project B generates $40m and $80m in year 1 and year 2, respectively. Assume zero interest rate, risk neutrality and no direct bankruptcy costs. Analysis Which project is better for the firm? In order to make the ends meet, the firm is considering taking one of the two projects. The two projects are equally costly and mutually exclusive. Project A makes cash flow of $100m in year 1 and zero in year 2, while project B generates $40m and $80m in year 1 and year 2, respectively. Assume zero interest rate, risk neutrality and no direct bankruptcy costs. Analysis Which project is better for the firm? 2 PV= 100/ 00