Sunburn Sunscreen has a zero coupon bond issue outstanding with a $24,000 face value that matures in one year. The current market value of the firms assets is $24,900. The standard deviation of the return on the firms assets is 34 percent per year, and the annual risk-free rate is 5 percent per year, compounded continuously. The firm is considering two mutually exclusive investments. Project A has an NPV of $2,200, and Project B has an NPV of $3,000. As the result of taking Project A, the standard deviation of the return on the firms assets will increase to 47 percent per year. If Project B is taken, the standard deviation will fall to 29 percent per year.

a-1. What is the value of the firms equity and debt if Project A is undertaken? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

a-2. What is the value of the firms equity and debt if Project B is undertaken? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

b. Which project would the stockholders prefer?

Suppose the stockholders and bondholders are in fact the same group of investors. Would this affect your answer to (b)?