Which of the following makes this a true statement? If the new project does significantly increase the firm's overall risk
A) the increased risk will be borne equally amongst the bondholders, preferred stockholders, and common stockholders.
B) the increased risk will be borne disproportionately by bondholders.
C) the increased risk will be borne disproportionately by preferred stockholders.
D) the increased risk will be borne disproportionately by common stockholders.

Question

Quizplus · Accepted Answer

Common stockholders are the last to be paid in the event of liquidation, making them bear the most risk when a firm's overall risk increases. Bondholders and preferred stockholders have priority claims on assets and fixed income payments, respectively, shielding them more from increased risk.

Which of the Following Makes This a True Statement? If