QUESTION 1 Buchanan Corp. forecasts the following payoffs from a project: Outcome Probability of Outcome Assumptions $ 1,100 25 % pessimistic 2,300 55 % moderately successful 5,800 20 % optimistic What is the expected value of the outcomes?

Which of the following statements is correct? stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock. takeovers are most likely to be attempted if the target firm’s stock price is above its intrinsic value. one advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership.