Firms Facing Financial Distress May Pass Up Positive NPV Projects

question 48

Multiple Choice

Firms facing financial distress may pass up positive NPV projects rather than commit new equity because:

• A) they prefer to finance with debt.
• B) the benefits may be shared with the bondholders.
• C) no cash is available for dividends.
• D)there is no interest tax shield associated with equity.

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Definitions:

Outstanding Balance

The amount of money that is still owed or due on a financial account or loan.

Invoice

A document issued by a seller to a buyer that lists goods or services provided along with their costs, signifying an obligation to pay.

Payment

The act of giving money in exchange for goods, services, or to fulfill an obligation.

ROG

Rate of Growth, representing the percentage increase in a particular variable over a specified period, often used in economic and financial contexts.