A) Now let's consider moral hazard. From the following table find the probability of a high return for Project B that leads to an equal expected return for both projects.

Project A Project B

Startup costs 500 500

High return 600 750

Low return N.A. 0

Probability of a high return 100% X?

B) Say the x in the above table was .5 and that both projects could borrow all their startup costs at 5% with no collateral. Which project would a risk-averse investor prefer?