Fountain Corporation’s economists estimate that a good businessenvironment and a bad business environment are equally likely forthe coming year. The managers of the company must choose betweentwo mutually exclusive projects. Assume that the project thecompany chooses will be the company’s only activity and that thecompany will close one year from today. The company is obligated tomake a $4,600 payment to bondholders at the end of the year. Theprojects have the same systematic risk but different volatilities.Consider the following information pertaining to the twoprojects:

Economy Probability Low-volatility project payoffHigh-volatility Project payoff

Good .50 $4,600 $4,000

Bad .50 $5,350 $5,950

a. What is the expected value of the company if thelow-volatility project is undertaken? The high-volatility project?(Do not round intermediate calculations and round your answers tothe nearest whole number, e.g., 32.) b. What is the expected valueof the company’s equity if the low-volatility project isundertaken? The high-volatility project? (Do not round intermediatecalculations and round your answers to the nearest whole number,e.g., 32.) c. Which project would the company’s stockholders preferif they are risk neutral? d. Suppose bondholders are fully awarethat stockholders might choose to maximize equity value rather thantotal company value and opt for the high-volatility project. Tominimize this agency cost, the company's bondholders decide to usea bond covenant to stipulate that the bondholders can demand ahigher payment if the company chooses to take on thehigh-volatility project. What payment to bondholders would makestockholders indifferent between the two projects? (Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.)