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Suppose a firm can invest in two mutually exclusive projects that yield the following cashflows: Project A: 150 and 50 with equal probability Project B:
Suppose a firm can invest in two mutually exclusive projects that yield the following cashflows: Project A: 150 and 50 with equal probability Project B: 350 and 20 with equal probability The manager earns a private benefit of 1 from project A. Additionally, she is risk-avers with a utility function of U=log(x). a. The board asks you for advise for the cheapest way to incentivize the manager to invest in project B with equity. What do you recommend?
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