Conflicts of Interest
Circular File Company value (assumes a safe project
with NPV = $5)w While firm value rises, the lack of a high potential payoff for
shareholders causes a decrease in equity value.
Circular File Company (Market Values)
Net W.C. 20 33 Bonds outstanding
Fixed assets 25 12 Common stock
Total assets 45 45 Total liabilitiesCircular File Company (Market Values)
Net W.C. 20 33 Bonds outstanding
Fixed assets 25 12 Common stock
Total assets 45 45 Total liabilities