Question

A firm has total liabilities of $45 million and owners' equity of $55 million, so that it has $100 million in total assets, $30 million of which are in cash. If the firm unexpectedly decides to undertake a new investment project and uses $25 million of its cash to acquire manufacturing equipment

	a.	the firm's debt will become riskier
	b.	the firm's equity will become riskier
	c.	the firm's assets will become riskier
	d.	this would be asset substitution
	e.	A and B
	f.	A and C
	g.	A and D
	h.	B and C
	i.	B and D
	j.	C and D
	k.	all but A
	l.	all but B
	m.	all but C
	n.	all but D
	o.	all are true
	p.	none are true

Answer 1

Investment in a project will decrease the assets of the company. This will lead to risk in payment of debts of the company. Also, investment in a new project will also increase the chances of the project to fail and thus, poses a risk to assets of the company too. There will be a substitution of asset by converting the cash into investment project. This has nothing to do with equity of the company.

So, the correct option will be l. All but B, which means all are true except B.