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A firm has the choice of investing in one of two projects. Both projects last one year. Project 1 requires an investment of $11K and yields either $11K or $13K with equal probability. Project 2 also requires an investment of $11K but yields either $5K or $20K with equal probability. The firm will raise $10K of the investment cost by issuing bonds at an annual interest rate of 10%.
(A) Which project would shareholders prefer and why?
(B) Which project would bondholders prefer and why?
Write down difference between Horizontal and Vertical analysis? Discuss in your own words categories of financial ratios?
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