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Hampstead Plc . has an investment opportunity. It must invest ...

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Question

Finance

Hampstead Plc
.
has an investment opportunity. It must invest
1
0
M for a certain payoff next year of
1
5
M following a government contract. Hampstead's assets in place are worth
3
0
M or
6
0
M
,
with equal probability, and it has
1
0
M shares. Assume that the interest rate is zero and investors are risk neutral. A
)
Assuming Hampstead can finance the investment with cash, should it go on
?

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