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Expected returns of project a and project b

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Reference no: EM133124378

Consider Project A and Project B.

 

Project A

Project B

Startup costs

 400

 400

High return

 500

 840

Low return

 NA

 0

Probability of a high return

 100%

 60%

 a. Assume that startup funds are financed at 10%. Assume that if the borrower defaults there is no penalty. What are the expected returns of project A and project B?

b. What might a lender insist on given the results from the last answer?

Reference no: EM133124378

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