Need ASAP Finance Major

Although the major benefit of debt financing is easy to observelong dashthe tax

shieldlong dashmany of the indirect costs of debt financing can be quite subtle and difficult to observe. Describe some of these costs.

(Select from thedrop-down menus.)

A. Overinvestment: Not investing in positive NPV projects

B. Overinvestment: Highly leveraged firms run the risk of bankruptcy and so cannot write long term employment contracts and offer job security.

C. Overinvestment: Investing in negative NPV projects.

D. Overinvestment: Paying out dividends instead of investing in positive NPV projects.

(Select from thedrop-down menus.)

A. Underinvestment: Not investing in positive NPV projects

B. Underinvestment: Investing in negative NPV projects.

C. Underinvestment: Paying out dividends instead of investing in positive NPV projects.

D. Underinvestment: Highly leveraged firms run the risk of bankruptcy and so cannot write long term employment contracts and offer job security.

(Select from thedrop-down menus.)

A Cashingout: Paying out dividends instead of investing in positive NPV projects.

B Cashingout: Investing in negative NPV projects.

C Cashingout: Highly leveraged firms run the risk of bankruptcy and so cannot write long term employment contracts and offer job security.

D Cashingout: Not investing in positive NPV projects

(Select from thedrop-down menus.)

A Employee jobsecurity: Highly leveraged firms run the risk of bankruptcy and so cannot write long term employment contracts and offer job security.

B. Employee jobsecurity: Investing in negative NPV projects.

C. Employee jobsecurity: Not investing in positive NPV projects

D. Employee jobsecurity: Paying out dividends instead of investing in positive NPV projects.