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 firm's only activity and that the firm will close one year

from today. The company is obligated to make a $$4,800$ 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$.$ What is the expected value of the company if the low$-$volatility project is undertaken?

The high$-$volatility project? $($Do not round intermediate calculations and round your

answers to the nearest whole number, e$.$g$.,32.)$

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

undertaken? The high$-$volatility project? $($Do not round intermediate calculations and

round your answers to the nearest whole number, e$.$g$.,32.)$

c$.$ Which project would the company's stockholders prefer if they are risk neutral?

d$.$ Suppose bondholders are fully aware that stockholders might choose to maximize

equity value rather than total company value and opt for the high$-$volatility project. To

minimize this agency cost, the company's bondholders decide to use a bond

covenant to stipulate that the bondholders can demand a higher payment if the

company 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 and round your answer to the nearest whole number,

e$.$g$.,32.)$