1. Considerastart-upfirmthathasthreedifferentpotentialbusinessmodelswhoseafter-taxpayoffsaresummarizedbelowalongwiththeirrespectiveprobabilities:

StrategyABC

Probability100%50%10%

Pay off $75 $140 $300

$0 $40

1. (a)With$0indebt,whichstrategyhasthehighestexpectedvalueforequityholders?(10points)
2. (b)With$40indebt,whichstrategyhasthehighestexpectedvalueforequityholders?(10points)
3. (c)With$110indebt,whichstrategyhasthehighestexpectedvalueforequityholders?(10points)