A company is in trouble as a result of low profits and excessive debts.

(a) Do you think that the creditors and the shareholders have the same concerns?

More specifically, in the event of the following:

◦ massive new investments carrying a very high risk but that will possibly lead to high returns which will enable the company to get back on its feet with a low level of profits;

◦ an increase in debt;

◦ an increase in shareholders’ equity.

(b) Would your answer be different if the company were profitable and carrying very little debt?

(c) What financial product do these examples of creditor–shareholder relationships bring to mind?