The Salad Oil Storage (SOS) Company has financed a large part of its facilities with long- term debt. There is a significant risk of default, but the company is not on the ropes yet. Explain:
a. Why SOS stockholders could lose by investing in a positive-NPV project financed by an equity issue.
b. Why SOS stockholders could gain by investing in a negative-NPV project financed by cash.
c. Why SOS stockholders could gain from paying out a large cash dividend.
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