One of the Indirect Costs of Bankruptcy Is the Incentive

Multiple Choice

One of the indirect costs of bankruptcy is the incentive for managers to take large risks. When following this strategy:

A) the firm will rank all projects and take the project which results in the highest expected value of the firm.
B) bondholders expropriate value from stockholders by selecting high risk projects.
C) stockholders expropriate value from bondholders by selecting high risk projects.
D) the firm will always take the low risk project.
E) Both the firm will rank all projects and take the project which results in the highest expected value of the firm; and bondholders expropriate value from stockholders by selecting high risk projects.