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《公司金融课后题答案CHAPTER 17》由会员上传分享，免费在线阅读，更多相关内容在教育资源-天天文库。
1、CHAPTER17CAPITALSTRUCTURE:LIMITSTOTHEUSEOFDEBTAnswerstoConceptsReviewandCriticalThinkingQuestions1.Directcostsarepotentiallegalandadministrativecosts.Thesearethecostsassociatedwiththelitigationarisingfromaliquidationorbankruptcy.Thesecostsincludelawyer’sfees,cou
2、rtroomcosts,andexpertwitnessfees.Indirectcostsincludethefollowing:1)Impairedabilitytoconductbusiness.Firmsmaysufferalossofsalesduetoadecreaseinconsumerconfidenceandlossofreliablesuppliesduetoalackofconfidencebysuppliers.2)Incentivetotakelargerisks.Whenfacedwithp
3、rojectsofdifferentrisklevels,managersactinginthestockholders’interesthaveanincentivetoundertakehigh-riskprojects.Imagineafirmwithonlyoneproject,whichpays$100inanexpansionand$60inarecession.Ifdebtpaymentsare$60,thestockholdersreceive$40(=$100–60)intheexpansionbut
4、nothingintherecession.Thebondholdersreceive$60forcertain.Now,alternativelyimaginethattheprojectpays$110inanexpansionbut$50inarecession.Here,thestockholdersreceive$50(=$110–60)intheexpansionbutnothingintherecession.Thebondholdersreceiveonly$50intherecessionbecaus
5、ethereisnomoremoneyinthefirm.Thatis,thefirmsimplydeclaresbankruptcy,leavingthebondholders“holdingthebag.”Thus,anincreaseinriskcanbenefitthestockholders.Thekeyhereisthatthebondholdersarehurtbyrisk,sincethestockholdershavelimitedliability.Ifthefirmdeclaresbankrupt
6、cy,thestockholdersarenotresponsibleforthebondholders’shortfall.3)Incentivetounder-invest.Ifacompanyisnearbankruptcy,stockholdersmaywellbehurtiftheycontributeequitytoanewproject,eveniftheprojecthasapositiveNPV.Thereasonisthatsome(orall)ofthecashflowswillgotothebo
7、ndholders.Supposearealestatedeveloperownsabuildingthatislikelytogobankrupt,withthebondholdersreceivingthepropertyandthedeveloperreceivingnothing.Shouldthedevelopertake$1millionoutofhisownpockettoaddanewwingtoabuilding?Perhapsnot,evenifthenewwingwillgeneratecashf
8、lowswithapresentvaluegreaterthan$1million.Sincethebondholdersarelikelytoendupwiththepropertyanyway,whywouldthedeveloperpaytheadditional$1millionandlikelyendupwithnoth
