Consider the following situation
1	The management of the firm below strives to maximize value for their existing shareholders
2	As of today, the managers (who have access to all relevant information) know that the market value balance sheet of the firm looks as follows (i.e. Scenario 2 below)
		Assets	1,100,000.00	Equity	800,000.00
				Debt	300,000.00
			1,100,000.00		1,100,000.00
3	The market is NOT privy to all information and ascribes 50% probability to each of the scenarios below
		Scenario 1
		Assets	700,000.00	Equity	400,000.00
				Debt	300,000.00
			700,000.00		700,000.00
		Scenario 2
		Assets	1,100,000.00	Equity	800,000.00
				Debt	300,000.00
			1,100,000.00		1,100,000.00
4	Thus the expected values as seen by the market are as follows
		Assets	900,000.00	Equity	600,000.00
				Debt	300,000.00
			900,000.00		900,000.00
5	There are 30,000 shares outstanding
Questions
A	Suppose the managers are considering a new project with a positive NPV of 100,000.
	This project requires 200,000 in fresh funding to execute.
	If the fresh funding has to come from an issuance of equity, and the pecking order model is valid:
		Will the managers issue equity and go ahead with the project?
		Why or why not?
		How about if they could fund the project with debt (assume there are no tax or bankruptcy costs to favor equity or debt)?
B	Would your responses above change if all else remained same except the project NPV which changed to a very high level of 400,000?
	What about a low level of 20,000?
	In each case explain why or why not.