As a result of a recession, Yellowstone corporation is in financial distress. Which one of the following best characterizes the likely interaction between bondholders and shareholders of Yellowstone?

a) Both bondholders and shareholders will encourage the firm to take on new high risk projects.

b) Bondholders reduce their required rate of interest so the firm can obtain additional financing until its financial status improves.

c) Bondholders tend to milk the property at the expense of stockholders.

d) Shareholders have an incentive to underinvest in positive NPV projects to the detriment of bondholders.

• Both bondholders and shareholders tend to work together for the common good of the firm.