Determine the highest expected payoff for project

Reference no: EM1352055

Zymase is a biotechnology start-up firm. Researchers at Zymase must choose one of three different research strategies. The payoffs (after-tax) and their likelihood for each strategy are show below. The risk of each project is diversifiable.

Strategy Probability Pay-off (million)

A 100% 75

B 50% 140

50% 0

C 10% 300

90% 40

a. Which project has the highest expected payoff?

b. Suppose Zymase has debt of $40 million due at the time of the projectâ??s payoff. Which project has the highest expected payoff for equity holders?

c. Suppose Zymase has debt of $10 million due at the time of the projectâ??s payoff. Which project has the highest expected payoff for equity holders?

d. If management chooses the strategy that maximizes the payoff to equity holders, what is the expected agency cost o the firm from having $40 million in debt due? What is the expected agency cost to the firm from having $10 million in debt due?

Reference no: EM1352055

Questions Cloud

Determine order in which constructors of class will execute : Suppose that an object of class three enters its scope, so the constructors of theses classes will execute. Determine the order in which the constructors of these classes will execute.

What was the bullets flight time : A classroom slide projector projects an enlarged (50 times taller) image of a 24mm high photographic film onto a screen located 10 meters from the projector. What focal length lens (cm) does the slide projector require to produce a sharply focus i..

Description of infant growth and development : Describe the infant's height and weight, including how they change during the first two years and how they compare with those of an adult.

Employee vs contractor : What do you believe are the benefits to being an employee of a company vs. a contractor?

Determine the highest expected payoff for project : Zymase is a biotechnology start-up company. Researchers at Zymase must choose one of 3 different research strategies. The payoffs and their likelihood for each strategy are given below.

Compute the indicated probability by using the distribution : Compute the indicated probability by using the normal distribution as an approximation to the binomial, if np

Relationship between influence and power : Do influence and power coexist and Can you exercise influence only if you have power? Provide adequate reasons and examples to support your view.

Elucidate how the factors determining resource demand : Elucidate how the factors determining resource demand differ from those determining product demand. Explain the meaning and significance of the fact that the demand for a resource is a derived demand. Why do resource demand curve slope downward.

Did the city make the right decision to left town : Aabout 300,000 bills would have had to have been examined. Some residents left town, and the individual refunds were not that large. Did the city make the right decision?

User Account

All Pages