Risk Shifting, Optimal Conditions Finance 5-10minutes work.

Hi Im looking for someone to solve the following questions. It is a 5-10minute question and would hope the price would at the very minimum/pro bono work. In this question we will see that when debt is very high, managers may take on projects that are much too risky. This is called risk shifting. Several chemists just quit a large chemical manufacturing firm to start up their own firm. They need to invest I=12M today (year 0) and in 3 years they think they will be ready to sell their drugs (starting in year 3). They must decide whether to research an improvement on Tylenol or an HIV treatment. There is a probability p=50% that the Tylenol project is successful, in which case it will have after tax earnings of 3.6M every year. The probability of HIV treatment being successful is q=.1% but it will bring them 600M every year. The discount rate is 9%. (A) Calculate the NPV of the firm under either project. If there were no frictions, which project should the firm take? (B) The experts decide to raise money using equity. What will be their pay-off if they take announce they will take project 1 and actually take project 1? What will be their payoff if they announce project 2 and actually take project 2? What will be their payoff if they announce one and take another? Is their announcement credible? Which project will the firm take? (C) The experts decide to raise money using debt with the interest payments starting in year 3. What are the payments to entrepreneurs and creditors if the firm announces 1, takes 1, and creditors believe the firm? What are the payments to entrepreneurs and creditors if the firm announces 2, takes 2, and creditors believe the firm? What if the firm announces one and does the other? Should the creditors believe the firm? What will happen? (D) Discuss what this implies for the firm’s corporate structure decision.