What is the maximum amount he will be able to borrow

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Reference no: EM131338012

An entrepreneur needs funds for a project. She has funds on her own, but enough to cover the required investment of $100. If the entrepreneur doesn't misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year. With probability .1, it fails and yields nothing. If the entrepreneur misbehaves, on the other hand, she obtains a private benefit of $14 in one year, whil lowering the probability of success to .5. Lenders require a gross return of $1 in one year on $1 loaned today. What is the maximum amount he will be able to borrow? Explain in detail. What then is the amount of funds of his own he must put into the project if he is to get financing?

Reference no: EM131338012

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