Problem on proceeds for a safe investment


Problem: A company issues bonds saying that it will use the proceeds for a safe investment. Instead, it uses the proceeds for a risky investment. Which of the following statements is true about this situation. a. This will result in a lawsuit from the stockholders because it is bait and switch. b. This will cause bondholders to convert their bonds to stock. c. This will result in a decrease in the value of the debt because the company is riskier. d. Dividends will go up to compensate shareholders for their increased risk. e. This will result in a decrease in the value of the equity because the company is riskier.

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Accounting Basics: Problem on proceeds for a safe investment
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