Which of the following may be considered a perverse incentive for a firm? A firm issues...
Which of the following may be considered a perverse incentive for a firm?
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A firm issues additional equity and uses the proceeds to invest in a high-risk project that it knows to have a high likelihood of failure. |
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A firm issues a convertible bond knowing that the bond would naturally have a comparatively low interest rate since bondholders can convert it to the firm's common stock if the firm does well. |
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A firm borrows heavily and invests the amount in a high-risk project, which it knows to have a high likelihood of failure |
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None of the above |
Homework Answers
Option C is correct
Perverse investment for a firm is that a firm borrows heavily and invests the amount in a high risk project, which it knows to have a high likelihood of failure
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