When a Firm in Financial Distress Accepts Very Risky Projects

question 23

Multiple Choice

When a firm in financial distress accepts very risky projects, the stockholders benefit at the expense of the bondholders. In terms of option theory, the gain to the stockholders occurs because:

• A) the stock is a put option on the firm's assets, and risky projects decrease the exercise price of the option.
• B) the stock is a put option on the firm's assets, and risky projects increase the exercise price of the option.
• C) the stock is a call option on the firm's assets, and risky projects increase the volatility of those assets.
• D) the stock is a call option on the firm's assets, and risky projects decrease the volatility of those assets.

Comprehend the factors affecting changes in land rent and demand for land.

Explore the impact of technological advancements and market changes on the value and use of land.

Understand the significance and arguments for and against a single tax on land as proposed by Henry George.

Understand the concept of economic rent and its incentive and allocation functions.

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Definitions:

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An enduring disorder of sleep featuring overpowering drowsiness in daytime hours and sudden instances of sleeping.

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A sleep disorder causing people to get up and walk around during deep sleep, often with no memory of the event.

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A sleep disorder causing feelings of terror or dread, typically occurring during non-REM sleep stages, and often accompanied by screaming, sweating, and confusion upon waking.