Volpin, Paolo (contributor) - 2000 - [Elektronische Ressource]
net-present-value, i.e. yields cash flows X>I. Otherwise, the project has a
negative net-present-value, that is, yields … cash flows x<I. The quality of the project becomes known
at t=2 only to the entrepreneur and the inside banks.
I assume … entrepreneur knows that the firm will default at t=4 since x+Y<I+K. Hence, he
chooses to appropriate as much cash flow as possible …