Fountain Corp.$\text{'}$s economists estimate that a good business environment and a bad business environment are equally likely for the

coming year. The managers of Fountain must choose between two mutually exclusive projects. Assume that the project Fountain

chooses will be the firm's only activity and that the firm will close one year from today. Fountain must make a $$2,900$ payment to

bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following

information pertaining to the two projects:

a$-1.$ What is the expected value of the firm if the low$-$volatility project is undertaken? $($Do not round intermediate calculations. Omit $

sign in your response.$)$

Expected value $

a$-2.$ What is the expected value of the firm if the high$-$volatility project is undertaken? $($Do not round intermediate calculations. Omit $

sign in your response.$)$

Expected value $

a$-3.$ Which of the two projects maximizes the expected value of the firm?

High$-$volatility project

Low$-$volatility project

b$-1.$ What is the expected value of the firm's equity if the low$-$volatility project is undertaken? $($Do not round intermediate calculations.

Omit $ sign in your response.$)$

Expected value

b$-2.$ What is the expected value of the firm$$s equity if the high$-$volatility project is undertaken? $($Do not round intermediate calculations. Omit $ sign in your response.$)$

Expected value $

c$.$ This part of the question is not part of your Connect assignment.

d$.$ Suppose bondholders are fully aware that stockholders might choose to maximize equity value rather than total firm value and opt for the high$-$volatility project. To minimize this agency cost, the firm$$s bondholders decide to use a bond covenant to stipulate that the bondholders can demand a higher payment if Fountain chooses to take on the high$-$volatility project. What payment to bondholders would make stockholders indifferent between the two projects? $($Do not round intermediate calculations. Omit $ sign in your response.$)$

Payment to bondholder