One of the indirect costs to bankruptcy is the incentive toward underinvestment.Following this strategy may result in:
A)the ﬁrm always choosing projects with the positive NPVs.
B)the ﬁrm turning down positive NPV projects that it would clearly accept in an all equity ﬁrm.
C)shareholders contributing the full amount of the investment, but both shareholders and
Bondholders sharing in the beneﬁts of the project.
D)Both A and C.
E)Both B and C.

Question

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The Answer of One of the indirect costs to bankruptcy is the incentive toward underinvestment.Following this strategy may result in:
A)the ﬁrm always choosing projects with the positive NPVs.
B)the ﬁrm turning down positive NPV projects that it would clearly accept in an all equity ﬁrm.
C)shareholders contributing the full amount of the investment, but both shareholders and
Bondholders sharing in the beneﬁts of the project.
D)Both A and C.
E)Both B and C.

One of the Indirect Costs to Bankruptcy Is the Incentive