When the Value of the Firm Is Above the Face

question 101

Multiple Choice

When the value of the firm is above the face value of the debt:

• A) the stockholders repay the debt and the equity is worth less than $0.
• B) the stockholders repay the debt and the equity is worth the difference between the firm value and the face value of the debt.
• C) the stockholders default and the lenders receive the value of the firm.
• D) the stockholders default and the equity is worth $0.

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