ATC Has a Value of $98,000 in a Normal Economy

Multiple Choice

ATC has a value of $98,000 in a normal economy and $87,000 in a recession.The firm has $90,000 of debt.The probability of a recession is 18 percent.The firm is considering a project that would change the firm values to $105,000 in a good economy and $92,000 in a recession.If the firm accepts this project,the firm value will ________ and shareholder value will ________.

A) decrease by $2,000;decrease by $1,000
B) increase by $2,000;increase by $2,000
C) increase by $6,640;increase by $6,100
D) increase by $12,000;increase by $12,000
E) increase by $6,640;increase by $6,640