Given that the firm is facing a reduction in cash flows, the entrepreneur is likely to undertake the safe project that will only generate enough cash flows to cover the firm's debt obligations. This is because the entrepreneur is likely to be risk-averse and would prefer to avoid the possibility of defaulting on the firm's debt obligations. In addition, the commercial bank is likely to be unwilling to provide additional funding to the firm if it undertakes the riskier project, given the current economic conditions.

What is the maximum loss that the investor could incur in his case? Does that influence how much risk they would take?