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:

Synapses

Tiny spaces between neurons; the gaps between neurons are referred to as synaptic gaps.

Neurons

Basic working units of the nervous system, cells specialized in carrying messages through an electrochemical process.

Endorphins

Natural, pain-relieving chemicals in the brain that are associated with feelings of euphoria and well-being.

Shock

A medical emergency involving a sudden and severe drop in blood pressure, leading to insufficient blood flow to the organs.