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Stockholders need not be concerned with bankruptcy costs, since they will be borne by bondholders. Comment. (Assume that the firm declares bankruptcy when the value

Stockholders need not be concerned with bankruptcy costs, since they will be

borne by bondholders. Comment. (Assume that the firm declares bankruptcy

when the value of assets is less than the value of obligations to bondholders.

Thus, in bankruptcy, equity has zero value.)

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