What is likely to happen in the MM model with a high risk of bankruptcy?
A)It requires almost 100% debt financing.
B)Valuable projects are foregone to preserve cash.
C)Wasteful expenditures are often found.
D)Management buys back shares from the open market.

Question

Quizplus · Accepted Answer

In the Modigliani-Miller (MM) model, when there's a high risk of bankruptcy, companies might forego valuable projects to preserve cash. This is because they need to ensure they have enough liquidity to meet their short-term obligations and avoid bankruptcy, rather than investing in new projects that could potentially increase their long-term value but would also increase their short-term financial risk.

What Is Likely to Happen in the MM Model with a High