Answer:
probability that make risk neutral accepting project < or 33.33 %
Step-by-step explanation:
given data
income = $600 million
legal liability = $1,200 million
to find out
what is the theta such that it is indifferent between accepting and rejecting the contract
solution
we know here that risk neutral between accept and reject contract θ value will be as that when net present value NPV of contract = 0
so
we can say NPV > 0
so ( 1- θ ) $600 Million + θ ( $1200 Million) > 0
$600 Million > $1800 θ
θ < = 33.33 %
so probability that make risk neutral accepting project < or 33.33 %