Question 33 5 pts 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 $3,800 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: Economy Probability Low-volatility Project High-volatility Project Payoff Payoff Bad 50 $3,800 $3,200 Good .50 $4,000 $4,600 (a) What is the expected value of the company if the low-volatility project is undertaken? What if the high-volatility project is undertaken? Which of the two strategies maximizes the expected value of the firm? (b) What is the expected value of the company's equity if the low-volatility project is undertaken? What is it if the high-volatility project is undertaken? (c) Which project would the company's stockholders prefer? Explain. (d) Suppose bondholders are fully aware that stockholders might choose to maximize equity value and opt for the high-volatility project. How would bondholders protect themselves at the time when bondholders lend to the firm. HTML For