The Under-Investment Problem Refers to the Problem That Equity Holders

Multiple Choice

The under-investment problem refers to the problem that equity holders prefer not to invest in positive-NPV projects in highly levered firms because:

A) future investments are contingent on debt financing.
B) projects are contingent on equity financing.
C) gains are evenly shared between all stakeholders.
D) most of the gains from the investment accrue to debt holders.
E) these investments will decrease share prices.