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Barbara can seek financing by issuing either debt or equity. If Barbara devotes minimal effort...

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Algebra

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Barbara can seek financing by issuing either debt or equity. If Barbara devotes minimal effort to her job, her salary will remain at $80,000. If Barbara works hard, she stands a 50 percent chance of getting a promotion and a raise to $120,000, so that her expected income will be $100,000. Barbara's disutility of working hard is $16,000, and her cost of funds is $25,000. Assume that information is asymmetric and that everyone is risk neutral. Also, Barbara keeps the full surplus from her hard work.In equilibrium, Barbara issuesA. equity; works hardB. equity; shirksC. debt; works hardD. debt; shirks

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