What is likely to happen in the MM model with a high risk of bankruptcy?
A) 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

With a high risk of bankruptcy, the company is likely to become more conservative with its financing decisions and forego valuable projects to preserve cash. This reduces the need for debt financing, as the company tries to avoid taking on too much debt. Wasteful expenditures are also less likely in this situation as the company is focused on preserving its financial stability. Management buying back shares is unlikely to occur as the company is more concerned about avoiding bankruptcy, which would negatively impact shareholders.

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