Zymase is a biotechnology startup firm. Researchers at Zymase must choose one of three different research strategies. Th
Posted: Fri Jul 01, 2022 7:47 am
Zymase is a biotechnology startup firm. Researchers at Zymasemust choose one of three different research strategies. Thepayoffs (after-tax) and their likelihood for each strategyare shown here,
Probability Payoff (in $million)A 100% 75B 50% 130 50% 0C 10% 310 90% 30
. The risk of each project is diversifiable.
a. Which project has the highest expected payoff?
b. Suppose Zymase has debt of $30 million due at the time ofthe project's payoff. Which project has the highest expectedpayoff for equity holders?
c. Suppose Zymase has debt of $120 million due at the time ofthe project's payoff. Which project has the highest expectedpayoff for equity holders?
d. If management chooses the strategy that maximizes the payoffto equity holders, what is the expected agency cost to thefirm from having $30 million in debt due? What is theexpected agency cost to the firm from having $120 million indebt due?
Probability Payoff (in $million)A 100% 75B 50% 130 50% 0C 10% 310 90% 30
. The risk of each project is diversifiable.
a. Which project has the highest expected payoff?
b. Suppose Zymase has debt of $30 million due at the time ofthe project's payoff. Which project has the highest expectedpayoff for equity holders?
c. Suppose Zymase has debt of $120 million due at the time ofthe project's payoff. Which project has the highest expectedpayoff for equity holders?
d. If management chooses the strategy that maximizes the payoffto equity holders, what is the expected agency cost to thefirm from having $30 million in debt due? What is theexpected agency cost to the firm from having $120 million indebt due?