Question: Consider Project A and Project B. Project A Project B Startup costs 400 400 High return 500 840 Low return NA 0 Probability of a

Consider Project A and Project B.

	Project A	Project B
Startup costs	400	400
High return	500	840
Low return	NA	0
Probability of a high return	100%	60%

a. Assume that startup funds are financed at 10%. Assume that if the borrower defaults there is no penalty. What are the expected returns of project A and project B?

b. What might a lender insist on given the results from the last answer?

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