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Atlas Bolt and Lotto company began the year with Total Assets =$100,000( all cash); Total...

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Accounting

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Atlas Bolt and Lotto company began the year with Total Assets =$100,000( all cash); Total Liabilities equal to $70,000 (all bank borrowings) and Shareholder Equity equal to $30,000. The managers of Atlas will be investing all $100,000 into only one of the following four projects and then will liquidate at the end of the year. The expected payoff to each project is listed below: Project 1: Guaranteed Payoff of $63,000 Project 2: 60% chance of $70,000 payoff and a 40% chance of a $50,000 payoff Project 3:20% chance of a 90,000 payoff and 80% chance of $30,000 payoff Project 4:10% chance of $120,000 payoff and a 90% chance of $10,000 payoff Assume that shareholders and bankers are both risk neutral. Which of the four projects would the bankers prefer the Atlas managers invest in? a. Project 1 Project 3:20% chance of a 90,000 payoff and an 80% chance of $30,000 payoff Project 4: 10% chance of $120,000 payoff and a 90% chance of $10,000 payoff Assume that shareholders and bankers are both risk neutral. Which of the four projects would the bankers prefer the Atlas managers invest in? a. Project 1 b. Project 2 c. Project 4 d. Project 3

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