Investing in a negative-npv project financed by cash

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The CEO of Vintage Clothes Ltd (VCL) has decided to finance a large part of the company's facilities with long- term debt. There is a significant risk of default, but the company is not in distress yet. Explain:

a. Why Vintage Clothes Ltd shareholders could lose by investing in a positive-NPV project financed by an equity issue.

b. Why Vintage Clothes Ltd shareholders could gain by investing in a negative-NPV project financed by cash.

c. Why Vintage Clothes Ltd shareholders could gain from paying out a large cash dividend.

Reference no: EM133116397

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