Dairy Isle Has a Value of $41,000 in a Good

Multiple Choice

Dairy Isle has a value of $41,000 in a good economy and $32,000 in a recession.The firm has $35,000 of debt.The probability of a recession is 50 percent.The firm is considering a project that would change the firm values to $43,000 in a good economy and $29,000 in a recession.Will shareholders be willing to accept this project? Why or why not?

A) No;Because the project will lower firm value by $500
B) No;Because the project will lower shareholder value by $500
C) No;Because the firm will be worth less in a recession than it is currently
D) Yes;Because the project will increase both firm and shareholder value by $1,000
E) Yes;Because shareholder value will increase $1,000 at a cost of $1,500 to the bondholders