why does the firm value increase if the payoff is less than the initial money we had. A company has EUR$10,000$ in cash, and debt with face value EUR$50,000$ due next year. The company has the possibility to invest in a project which

requires an investment of all its cash. The project is expected to produce a cash flow next year of EUR$100,000$ with probability $5$ percent, and EUR$10,000$ otherwise.

Assume a discount rate of $20$ percent throughout. By implementing the project versus doing nothing, which statements are correct?

$-$ a$)$ The value of the firm increases $($true$)$