An entrepreneur needs funds for a project she has funds of


An entrepreneur needs funds for a project. She has funds of her own, but not enough to cover the required investment of $100. If the entrepreneur doesn't misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year. With probability .1, it fails and yields nothing. If the entrepreneur misbehaves, on the other hand, she obtains a private benefit of $14 in one year, while lowering the probability of success to .5. Lenders require a gross return of $1 in one year on $1 loaned today. What is the maximum amount she will be able to borrow? Explain in detail. What then is the amount of funds of her own she must put into the project to get financing?

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Financial Management: An entrepreneur needs funds for a project she has funds of
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