Motivation Question 2 Deciding on a risky project for owners with diverse risk aversion You are still the financial manager of same firm, but the old owner has died and the firm has been inherited by the two children a son and a daughter (each gets 50%o of shares The son is called Meek Smith, and the daughter is called Take-A-Chance Smith, and the name describe their attitudes toward taking risk A risky project has been identified it requires an investment today of SIOM, and next year it will have a payoff of either $100M or 0 When you ask the owners, Meek says that the project is too risky and should not be accepted, while Take-A-Chance says: Let's do it What should you tell the owners? How can the disagreements between shareholders be resolved? 2013-2-252013-2-25 1-3 Motivation Question 2 • Deciding on a risky project for owners with diverse risk aversion „ You are still the financial manager of same firm, but the old owner has died and the firm has been inherited by the two children: a son and a daughter (each gets 50% of shares) „ The son is called Meek Smith, and the daughter is called Take-A-Chance Smith, and the name describe their attitudes toward taking risk „ A risky project has been identified: it requires an investment today of $10M, and next year it will have a payoff of either $100M or 0 • When you ask the owners, Meek says that the project is too risky and should not be accepted, while Take-A-Chance says: “Let’s do it!” • What should you tell the owners? • How can the disagreements between shareholders be resolved?