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    Project payoff, debtholder & shareholders - Corporate Finance

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    Project A has a guaranteed payoff of $200 million, which will exactly compensate the debtholders of the firm. Project B has a 50 percent probability of a $400 million payoff and a 50 percent probability of a zero payoff. Which project do the debtholders prefer and which project do the shareholders prefer?

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    Solution Preview

    Debt holders prefer less risky investments, thus they will opt for Project A having guaranteed payoff of $200 million. On ...

    Solution Summary

    This solution explains which of two given projects is preferable to both debt holders and shareholders, given probability of payoff