Example $2$

The Norris Company is looking to fund a new project with capital from both bondholders and shareholders. The project will cost $$7,000$ with $60\%$ being financed with bonds requiring $6\%$ interest and the remainder with shareholder investment. The company predicts there is a $60\%$ chance the project will be a success. The cash flow to bondholders is $$4,452\mathrm{.}00$ if the project ends up a success. The expected return for bondholders is $3\mathrm{.}60\%($think about what this means about their cash flow if the project is a failure$),$ while the expected rate of return to shareholders is $18\mathrm{.}89\%.$ Calculate the cash flows to the firm and each investor in the Good and Bad scenarios and the expected Cash flows to each.