When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to:
I.favor high-risk, high-return projects even if they have negative NPV;
II.refuse to invest in low-risk, low-return projects with positive NPVs;
III.delay the onset of bankruptcy as long as they can
A)I only
B)II only
C)III only
D)I, II, and III

Question

Quizplus · Accepted Answer

In financial distress, managers may favor high-risk, high-return projects (even with negative NPV) to potentially turn the company around, avoid low-risk, low-return projects (even with positive NPVs) as they may not significantly impact the firm's recovery, and delay bankruptcy to try to find a solution, aligning with options I, II, and III.

When Faced with Financial Distress, Managers of Firms Acting on Behalf