Consider This Decision Tree,which Represents the Outcomes of Two Alternative

question 5

Multiple Choice

Consider this decision tree,which represents the outcomes of two alternative projects that Ink,Inc.,a producer of printers,might pursue.Ink,Inc.,needs to borrow $1,000 to pursue either project and is going to sell bonds to finance the venture.
Under these circumstances,bondholders and shareholders may have incompatible incentives because:

• A) shareholders know that they have limited liability because of their ability to declare bankruptcy.
• B) bondholders are not profit maximizers.
• C) shareholders are not profit maximizers.
• D) bondholders have limited liability because insurance against risk is provided by the federal government.
• E) shareholders insure bondholders against risk.

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