The underinvestment problem occurs in a financially distressed firm when
A) the value of investing in a positive-NPV project is likely to go to debt holders instead of equity holders.
B) the value of investing in a positive-NPV project is likely to go to equity holders instead of debt holders.
C) management invests in negative-NPV projects to reduce their own risk.
D) issuing equity becomes difficult due to increased risk.
Answer: A
If the answers is incorrect or not given, you can answer the above question in the comment box. If the answers is incorrect or not given, you can answer the above question in the comment box.