Question: Assume all risks involved in this question are idiosyncratic ( firm - specific ) so investors discount rate is always the risk - free rate,
Assume all risks involved in this question are idiosyncratic firmspecific so investors discount rate is always the riskfree rate, A firm currently has two assets: $ million cash and a risky investment project A that lasts for one year. It also has $ million debt payment due next year. The firm faces an additional risky investment B that also lasts one year, which requires initial investment of $ million today.Scenario Scenario Assume all risks involved in this question are idiosyncratic firmspecific so investors' discount rate is always the riskfree rate, A firm currently has two assets: $ million cash and a risky investment project A that lasts for one year. It also has $ million debt payment due next year. The firm faces an additional risky investment that also lasts one year, which requires initial investment of $ million today.
tableScenario Scenario cash flow of Project A$ mil $ milcash flow of Project B$mil $ milIf the managers objective is to maximize firm value, will they invest in project BIf the managers objective is to maximize shareholder value, will they invest in project B Please explain.
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