Resources from new equityholders or new debtholders

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Suppose a company is in financial distress. Managers act rationally on behalf of shareholders. The company has access to a safe project with positive NPV, but the only way to finance the project is with funds from the existing shareholders. The manager decides not to undertake the project. Explain why a rational manager can pass by a safe project that creates value. If you allow this project to be funded with resources from new equityholders or new debtholders, is there any possibility the project might be undertaken? Explain your answer.

Reference no: EM133116096

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