When a Stockholder's Stake Is Worthless the Firm Runs the Risk

question 47

Multiple Choice

When a stockholder's stake is worthless the firm runs the risk of:

• A) underinvestment because there isn't much capital for investment.
• B) overinvestment because there isn't much wealth at risk.
• C) having bondholders invoke the separation principle to obtain first rights on the firm's assets.
• D) none of the options.

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Definitions:

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