Zymase is a biotechnology startup firm. Researchers at Zymase must choose one of three different research strategies.
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Question:
Zymase is a biotechnology startup firm. Researchers at Zymase must choose one of three different research strategies. The payoffs (after-tax) and their likelihood for each strategy are shown below. The risk of each project is diversifiable.
a. Which project has the highest expected payoff?
b. Suppose Zymase has debt of $35 million due at the time of the project’s payoff. Which project has the highest expected payoff for equity holders?
c. Suppose Zymase has debt of $130 million due at the time of the project’s payoff. Which project has the highest expected payoff for equity holders?
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