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Using the stock as an option view, explain why stockholders might choose to undertake a high risk investment, even if the NPV of the investment
Using the stock as an option view, explain why stockholders might choose to undertake a high risk investment, even if the NPV of the investment is negative. What group is on the other side of this transaction?
Multiple choices are:
this is the asset substitution problem |
debtholders are on the other side of the transaction |
higher risk in the underlying assets increases the value of an option on those assets, and the increase in value can more than cancel out the negative NPV |
managers are on the other side of the transaction |
A and B |
A and C |
A and D |
B and C |
B and D |
C and D |
all but A |
all but B |
all but C |
all but D |
all are true |
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