The owners of a firm facing a high probability of bankruptcy prefer to invest in projects, because

The owners of a firm facing a high probability of bankruptcy prefer to invest in projects because

Further Explanation:

Bankruptcy: Bankruptcy refers to the legal process where the person or company seeks relief from the court because they are not able to pay their debt. The company and debtor both can file for bankruptcy in the court.

If the firm is facing bankruptcy, it means that it is heavily laden with debt. The profitability of the firm is very low since it is not able to pay its debts. If the firm goes for bankruptcy, the shareholder will receive a cents for a dollar. But if the firm accepts the risky project and successfully implement it, then it will improve the condition of the firm. The firm might be able to pay its debts.

Therefore, the firm that is facing a high chance of bankruptcy prefers to invest in risky projects because the shareholders might receive their money back if the project is successful.

Learn more:

1.Learn more about the value of the investment

2.Learn more about the value of the bond

3.Learn more about the present value of the investment

Answer details:

Grade: Senior School

Subject: Business Studies

Chapter: Financing decisions

Keywords: Owners of a firm, high probability of bankruptcy, risky projects, investment, bankruptcy, the shareholders, have, little too, lose, profit, loss, creditors, bank loan.

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