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 advice for the cheapest way to incentivize the manager to

invest in project B with equity. What do you recommend? b. Can you think of a better way to compensate the manager to induce investment in

project B?