If a Firm Borrows a Large Sum of Money, It

Multiple Choice

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

A) risk taking.
B) adverse selection.
C) poor decision making.
D) Ricardian equivalency.
E) moral hazard.