One of the Indirect Costs to Bankruptcy Is the Incentive

question 47

Multiple Choice

One of the indirect costs to bankruptcy is the incentive toward underinvestment. Following this strategy may result in:

• A) the firm always choosing projects with the positive NPVs.
• B) the firm accepting negative NPV projects that it would clearly reject in an all equity firm.
• C) bondholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.
• D) both the firm always choosing projects with the positive NPVs; and stockholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.
• E) both the firm turning down positive NPV projects that it would clearly accept in an all equity firm; and stockholders contributing the full amount of the investment, but both stockholders and bondholders sharing in the benefits of the project.

---

Definitions:

PCs

Personal Computers; electronic devices used for processing data, performing tasks, and accessing the internet, capable of running a wide range of applications.

Trucking Industry

The sector of the economy focused on the transportation of goods and materials by large vehicles over road networks.

PNP-Type Transistor

A semiconductor device with a layer of N-doped semiconductor material between two layers of P-doped material, primarily used as a switch or amplifier in electronic circuits.

Continuity

The uninterrupted path for current flow in an electrical circuit, indicating no breaks or faults.