Suppose that RFS Corporation has issued debt with a book value of $20 million and has issed equity with a book value of $30 million. However, the market value of the firm is only $15 million now (i.e., the expected cash flow is $15 million if the firm is liquidated today). RFS Corporation has a potential project during the financial distress. There is a 15% probability of boom and 85% probability of bust. The project generates $100 million in one period in case of a boom, but the project generates zero value in case of a bust. Cost of investment is $15 million. Assume that opportunity cost of capital is 10%.

1) What is the NPV of the project?

2) If you are a bondholder, do you want to take the project? Explain why you want or do not want to take the proejct (Your answer must include calculation and be no more than 200 words. Your mark will be penalized for exceeding 200 words limit).

3) If you are a shareholder, do you want to take the project? Explain why you want or do not want to take the proejct (Your answer must include calculation and be no more than 200 words. Your mark will be penalized for exceeding 200 words limit).