Question
Consider Project A and Project B. Project A Project B Startup costs 400 400 High return 500 840 Low return NA 0 Probability of a
Consider Project A and Project B.
| Project A | Project B | |
|---|---|---|
| Startup costs | 400 | 400 |
| High return | 500 | 840 |
| Low return | NA | 0 |
| Probability of a high return | 100% | 60% |
a. Assume that startup funds are financed at 10%. Assume that if the borrower defaults there is no penalty. What are the expected returns of project A and project B?
b. What might a lender insist on given the results from the last answer?
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Why Nations Fail The Origins Of Power, Prosperity, And Poverty
Authors: Daron Acemoglu, James Robinson
1st Edition
0307719227, 9780307719225
