Manager operates on behalf of shareholders interests

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A firm has a project-in-place that can generate earnings of 10,000 with probability p1 = 0.5. There is a new project available. The cost of the project is 1,000. If the investment is undertaken, the probability p1 increases by 0.2. (i) Should the project be undertaken? (ii) Will the new project be undertaken if the firm has outstanding debt of D1 = 3,000 and manager operates on behalf of shareholders’ interests? (iii) Will the new project be undertaken if the firm has debt outstanding D1 = 6,000 and manager operates on behalf of shareholders’ interests?

Reference no: EM131879682

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