Zymase is a biotechnology startup firm and it considers the following investment opportunities. The firm does not have any other assets. Researchers at Zymase must choose one of three different research projects. The NPV (after-tax payoff) and their likelihood for each project are shown below. Project Probability NPV ($million) A 100% 90 B 50% 160 50% 0 C 10% 370 90% 20

(i) Suppose Zymase has no debt, which project will be selected by the shareholders?

(ii) Suppose Zymase has debt of $35 million that is due at the same time when these projects are considered, which project will be selected by the shareholders?

(iii) What is the issue in (ii)? Is this issue consistent with the shareholder theory or the stakeholder theory?