Question: a . If the probability of default is high, managers and stockholders will be tempted to take on excessively risky projects.b . If the probability

a. If the probability of default is high, managers and stockholders will be tempted to take on excessively risky projects.b. If the probability of default is high, stockholders may refuse to contribute equity even if the firm has safe positive-NPV opportunities.c. When a company borrows, the expected costs of bankruptcy come out of the lenders pockets and do not affect the market value of the shares.

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