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Question 13 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. T company is obligated to make a $4,000 payment to bondholders at the end of the year. The projects have the same systema risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability Low Volatility High-Volatility Project Payoff Project Payoff Bad 50 $ 4,000 $3,400 Good .50 4,450 5,050 Suppose bondholders are fully aware that stockholders might choose to maximize equity value rather than total company vall and opt for the high-volatility project. To minimize this agency cost, the company's bondholders decide to use a bond covena 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? $4,900 $4,600 None of the answers is correct $4,800 $4.700