Firm has only $1,000 in cash and debt in the form of bonds with $5,000 par value. The bonds are maturing soon. Firm can invest in project costing $1,000. It pays $20,000 with probability of 0.02, and 0 with probability of 0.98

a) What is expected return on the project? How good is this project?

b) Does the firm have an incentive to take the project? Why? What would be the bondholders view of the project?