When Financial Disaster Is Looming, Management May Borrow to Invest

question 46

Multiple Choice

When financial disaster is looming, management may borrow to invest in projects having a negative expected NPV because:

• A) the firm's beta is now negative.
• B) taxes are no longer a concern.
• C) the interest tax shield will cover the loan costs.
• D)the lender bears all the risk.

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Definitions:

Implied Warranty

A legal concept that guarantees a product will meet certain minimum standards of quality and functionality implied by law, even if not expressly stated.

Contract Terms

The specific provisions and conditions outlined in a contract that determine the rights and duties of the parties involved.

Statue Of Limitations

Legal time limits within which actions must be filed in court; beyond this period, claims are no longer enforceable. Note: The correct term is "Statute of Limitations."

UCC

The Uniform Commercial Code is an extensive collection of legislation that regulates business dealings across the United States.