When Financial Disaster Is Looming,management May Borrow to Invest in Projects

question 72

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 most of the risk.

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Definitions:

Portfolio

An assortment of financial assets encompassing shares, fixed income securities, raw materials, liquid cash, and near-cash items, along with inclusive of pooled investment vehicles like closed-end funds and ETFs.

Industry

An industry is a group of companies that are related based on their primary business activities.

Local Currency Return

The return on an investment denominated in the currency of the country where the investment is made.

Stock Market

A public marketplace for buying and selling stocks, which represent ownership claims on businesses.