This section consists of ONE (1) compulsory question. Candidates should attempt ALL parts of the question. This section is worth TWENTY-FIVE (25) marks. You have an opportunity to start a project that generates cash flows of 1800 in one year if the economy is strong, or 900 if the economy is weak. The probability of a strong economy is 0.4 and that of a weak economy is 0.6 . The initial investment required to start the project is 1000. The risk-free rate is 2% and the project commands a risk premium of 10%. Assume that the perfect capital market conditions hold. (Please maintain 4 digit decimal in your calculation). a) Suppose you have no money to start with and you want to fund the initial investment entirely through risk-free debt. Is it feasible? Why? [4 marks]