Here are Multi-Universals Project Payoffs on a $100m. investment:

	Cash Flow if State of the Economy is
	Good	Bad	Probability of Good	Expected Value
Project A	$130 million	$50 million	0.8	$114 million
Project B	$150 million	$50 million	0.2	$70 million

Assume that investors are risk neutral and that the risk-free required rate of return is zero. Suppose bondholders assume that the firm will choose Project A. Then the stated interest rate will be 12.5% because at this stated rate, the expected return to bondholders will be exactly 0%, which is the equilibrium risk-free required rate of return. This can be seen from the table below:

Project A	Payoff to project	Payoff to bondholders	Payoff to equityholders
Good State (p=0.8)	130	112.5	17.5
Bad State (p=0.2)	50	50	0
Expected Payoff	114	100	14

However, if bondholders make this assumption and require a stated rate of interest of only 12%, stockholders have an incentive to choose project B. This can be seen by comparing the above payoff matrix with the following payoff matrix detailing payoffs from project B:

Project B	Payoff to project	Payoff to bondholders	Payoff to equityholders
Good State (p=0.2)	150	112.5	37.5
Bad State (p=0.8)	50	50	0
Expected Payoff	70	62.5	7.5

Complete the payoff matrix from the Credit Rationing Problem with a 0% risk-free required rate of return for the case where the bondholders assume project B will be chosen. In particular, answer the question as to which project equity holders will choose under this assumption.