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Zymase is a biotech startup. Researchers must choose one of three different strategies. The possible...

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Finance

Zymase is a biotech startup. Researchers must choose one of three different strategies. The possible payoffs (after tax) and their likelihoods for each strategy are shown below. Strategy A is certain (only one possible payoff), while Strategies B and C each have two possible outcomes.

Strategy Probability Payoff (million)

Probability

Payoff (million)

A 100% $85

B

50%

$150 50% $0

C

10%

$350 90% $0

Which of the following is the best answer?

A.

Stockholders are more likely to prefer Strategy C if Zymase has a high debt level.

B.

Stockholders are more likely to prefer Strategy C if Zymase has a low debt level.

C.

Stockholders will prefer the safest strategy, A, regardless of the firms debt level.

D.

Debt level does not affect the preferences of stockholders, because they are looking for the highest NPV.

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