The Salad Oil Storage (SOS) Company has financed a large part of its facilities with longterm debt.

Question:

The Salad Oil Storage (SOS) Company has financed a large part of its facilities with longterm debt. There is a significant risk of default, but the company is not on the ropes yet.

Explain:

a. Why SOS stockholders could lose by investing in a positive-NPV project financed by an equity issue.

b. Why SOS stockholders could gain by investing in a negative-NPV project financed by cash.

c. Why SOS stockholders could gain from paying out a large cash dividend.

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Principles Of Corporate Finance

ISBN: 9780077398040

10th Edition

Authors: Richard Brealey

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Question Posted: Jul 31, 2024 03:00 AM

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The Salad Oil Storage (SOS) Company has financed a large part of its facilities with longterm debt.

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Principles Of Corporate Finance

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