Dear Sofia,
Your intuition is not wrong. In this case, it does not hold because the recovery rate is much higher for project B. The recovery rate is how much the bank recovers when the firm goes bankrupt. With project B, the lowest cashflow that the bank receives is 70 while it is 20 for project A
Your intuition is not wrong. In this case, it does not hold because the recovery rate is much higher for project B. The recovery rate is how much the bank recovers when the firm goes bankrupt. With project B, the lowest cashflow that the bank receives is 70 while it is 20 for project A