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Suppose there is a high-risk and high-return one-vear proiect with the following payoff (the Gamble). Should the firm accept this project? The cost of investment
Suppose there is a high-risk and high-return one-vear proiect with the following payoff (the Gamble). Should the firm accept this project? The cost of investment is $200 (all the firm's cash), and the WACC is 50% The Gamble Win Big Lose Big Probabilit 10% 90% Payoff $1,000 $0 ' The expected payoffs to shareholders and debtholders-? NPV to shareholders -? NPV to debtholders-? * If the firm was all-equity, what would the shareholders decide? Suppose there is a high-risk and high-return one-vear proiect with the following payoff (the Gamble). Should the firm accept this project? The cost of investment is $200 (all the firm's cash), and the WACC is 50% The Gamble Win Big Lose Big Probabilit 10% 90% Payoff $1,000 $0 ' The expected payoffs to shareholders and debtholders-? NPV to shareholders -? NPV to debtholders-? * If the firm was all-equity, what would the shareholders decide
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