Imagine a situation in which a firm owes its creditors $50,000 but the firm’s assets are only worth $40,000. Equity holders have an incentive to take on very risky projects because if they do nothing, they are certain to be wiped out, while debt holders have incentive to avoid risky projects. Which of the following theories is appropriate to represent this situation? a. The static tradeoff theory
b. An agency cost
c. A product market model
d. The asymmetric information of debtholders and equity holders