Financial Distress Can Lead to Financial and Operating "Games

Multiple Choice

Financial distress can lead to financial and operating "games." Which of the following statements is (are) true?

A) A firm's stockholders may prefer that the firm engage in riskier projects whereas the firm's bondholders may prefer that the firm invest in low-risk projects.
B) The firm may underinvest in projects because the financing must be provided solely by the stockholders since it is unlikely the firm will be able to borrow additional funds.
C) The firm may underinvest in projects because the financing must be provided solely by the bondholders since it is unlikely the firm will be able to issue additional stock.
D) A firm's bondholders may prefer that the firm engage in riskier projects whereas the firm's stockholders may prefer that the firm invest in low-risk projects.
E) Both (a) and (b)