Peanut Barn, Inc. a firm that has just been incorporated can select one of two projects, which will have different payoffs depending on the state of the economy. The probability of a weak economy is 60% and a strong economy is 40%. Assume that Peanut Barns expected required rate of return is 10%.

Here is some information on the future cashflow of the firm (in a years time) if it chose either of the two projects. The firm does not expect to have any cashflows past year 1:

Project	Weak Economy	Strong Economy
Peanut Butter Plant	400,000	500,000
Canned Nuts	150,000	900,000

1. (5 points) Which of the two projects will Peanut Barn choose if it is internally financed?

(10 points) Which of the two projects will it choose if it has to pay back debt worth $400,000 one year from now?