The firm is obligated to make a $5,400 payment to bondholders at the end of the year.

Economy Probability Low-Volatility High Volatility

Bad .50 $ 5,400 $ 4,800

Good .50 6,550 7,150

What is the expected value of the firms equity if the low-volatility project is undertaken? What is it if the high-volatility project is undertaken? (Do not round intermediate calculations and round your answers to the nearest whole dollar)

Question: Suppose bondholders are fully aware that stockholders might choose to maximize equity value rather than total firm value and opt for the high-volatility project. To minimize this agency cost, the firm's bondholders decide to use a bond covenant to stipulate that the bondholders can demand a higher payment if the firm chooses to take on the high-volatility project. What payment to bondholders would make stockholders indifferent between the two projects? (Do not round intermediate calculations and round your answers to the nearest whole dollar)

Payment to bondholders $____________