Consider a company that is likely to go bankrupt in the next year. Stockholders may wish to pursue negative-NPV projects, even if there is no additional value to the project from real options.

Question

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If a company is likely to go bankrupt in the next year, stockholders may want to pursue negative-NPV projects in order to potentially maximize their returns before the company ultimately goes bankrupt. Even if there is no additional value from real options, these projects may still be pursued in an attempt to benefit from any short-term gains or cash flows.

Consider a Company That Is Likely to Go Bankrupt in the Next