Fountain Corporation$$s economists estimate that a good business environment and a bad business

environment are equally likely for the coming year. The managers of the company must choose between

two mutually exclusive projects. Assume that the project the company chooses will be the company$$s only

activity and that the company will close one year from today. The company is obligated to make a $$4,100$

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:

Economy Probability Low$-$Volatility

Project Payoff

High$-$Volatility

Project Payoff

Bad $\mathrm{.}50$ $ $4,100$ $ $3,500$

Good $\mathrm{.}504,6005,200$

a$.$ What is the expected value of the company if the low$-$volatility project is undertaken? The highvolatility project?

b$.$ What is the expected value of the company$$s equity if the low$-$volatility project is undertaken? The

high$-$volatility project?

c$.$ Which project would the company$$s stockholders prefer?