Which of the following is a problem associated with bankruptcy?

A. It is embarrasing for managers to work at a firm that fails.

B. Bankruptcy shifts assets to more highly valued uses.

C. The costs associated with bankruptcy further reduce cash flows to shareholders.

D. A company immediately ceases to be able to conduct business once it has filed for bankruptcy.

The irrelevance of capital structure in perfect capital markets helps us because

A. if something is irrelevant, we ignore it.

B. it applies to real world capital markets.

C. it simplifies a complex subject.

D. it shows us which consumptions, when relaxed, may make capital structure relevant.

Rather than just add up all the costs associated with a proposed investment, the with-and-without principles recognizes that some cash flows might not be incremental. Examples of nonincremental project costs are:

A. sunk costs, additional revenues, and COGS of new products.

B. sunk costs, allocation of overhead, and cannibalism of sales.

C. sunk costs, allocation of overhead, and depreciation of new equipment.

D. allocation of overhead, additional revenues, and costs.

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