Solution-How is in fact made viable

How is in fact made viable

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Reference no: EM132727053

Companies obtained their own funds from two sources: debts and equity. The providers of these funds are protected in different ways. Debt holders have specific contracts with the company, and if the company defaults they have recourse ahead of shareholders.

Shareholders are the bearers of residual risks and in turn for the uncertainty this creates, equity finance is more expensive than debt finance, reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last, and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.

Problem 1: If the shareholders' position is not protected by a contract unlike the provider by debt, how is it in fact made viable? Discuss.

Reference no: EM132727053

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How is in fact made viable

Reference no: EM132727053

Reference no: EM132727053

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