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Expected returns of project a and project b

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Reference no: EM133124645

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: EM133124645

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