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?

Transcribed Image Text:

Strategy Probability Payoff (in $ million) A 100% 90 B 50% 160 50% C 10% 370 90% 20 Strategy Probability Payoff (in $ million) A 100% 90 B 50% 160 50% C 10% 370 90% 20

Answer rating: 100% (QA)

a PROJECT A 90 million PROJECT B 05 x 16080 million PROJECT C01x37009x2055 million theref... View the full answer