Question: 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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