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Which of the following terms refer to the situation in which a firm has negative net worth? Multiple Choice   Legal bankruptcy.   Liquidation.   Accounting insolvency.   Technical insolvency.   Business failure.

What is cost of financial distress to the firm without going bankrupt?Give two examples.

18. Which of the following statements is true? A. Payment on interest on debt is considered an expense, while payment of dividends is a return on capital. B. Unpaid common stock dividends can result in liquidation of the firm. C. One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt. 19. In the real world with the presence of corporate taxation, MM Proposition I that VL- Vu does not hold because: A. levered firms pay less taxes compared with identical unlevered firms. B. bondholders require higher rates of return compared with stockholders. C. dividends are no longer relevant with taxes. 20. AI Robotics Company will earn $120 in one year if it does well. The debtholders are promised payments of $80 in one year if the firm does well. If the firm does poorly, expected earnings in one year will be $20 and the repayment to debtholders will only be $10 because of financial distress cost. The probability of the firm…

Which of the following factors reflect pure market risk for a given corporation?a. Increased short-term interest rates.b. Fire in the corporate warehouse.c. Increased insurance costs.d. Death of the CEO.e. Increased labor costs.

Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.

The disadvantages of debt to the corporation include all but which of the following? Group of answer choices A. Indenture agreements may place burdensome restrictions on the firm. B. Interest and principal payments must be met regardless of performance results. C. Debt may have to be paid back with "cheaper" dollars because of inflation. D. Too much debt may depress the firm's stock price.

Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corporate tax rate increases. b. The personal tax rate increases. c. Due to market changes, the firm’s assets become less liquid. d. Changes in the bankruptcy code make bankruptcy less costly to the firm. e. The firm’s sales and earnings become more volatile.

Which of the following statements is CORRECT? O The debt ratio that maximizes expected EPS generally exceeds the debt ratio that maximizes share price. O Increasing its use of financial leverage is one way to increase a firm's return on investors' capital (ROIC). O If a company were to issue debt and use the money to repurchase common stock, this would reduce its return on investors' capital (ROIC). O If a change in the bankruptcy code made bankruptcy less costly to corporations, this would tend to reduce corporations' debt ratios.

7. When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to: I) Favour high-risk, high-return projects even if they have negative NPV; II) Refuse to invest in low-risk, low-return projects with positive NPVs; III) Delay the onset of bankruptcy as long as they can   II only I, II, and III III only I only

If a company has declared bankruptcy, its financial statements likely violate: Multiple Choice O O O O The stable monetary unit assumption. The fair value measurement approach. The going concern assumption. The present value measurement approach.

Holding everything else constant, which of the following statements is TRUE? * If amendments to the bankruptcy code make bankruptcy less difficult for companies, the average corporation's debt ratio will likely decrease. An rise in the personal tax rate is likely to increase the average corporation's debt ratio. A rise in a company's operating leverage is likely to allow it to use more debt in its capital structure. An rise in the corporate tax rate is likely to allow a company's capital structure to incorporate more debt. Firms with relatively stable assets have relatively low bankruptcy costs, so they use relatively little debt.

Bankruptcy issues: 1. Why do creditors accept a plan for financial rehabilitation rather than demand liquidation of business? 2. Would it be a sound rule liquidate whenever the liquidation value above the value of a corporation is a going concern? Discuss

DEBT MAY BE BENEFICIAL IN CORPORATE GOVERNANCE FOR THE FOLLOWING REASONS EXCEPT: Select one: O a. BECAUSE OF THE DISCIPLINARY EFFECT ON MANAGERS O b. BECAUSE THE INTEREST PAYMENTS BENEFIT SHAREHOLDERS O c. BECAUSE INTEREST HAS TO BE PAID TO AVOID BANKRUPTCY O d. BECAUSE IT REDUCES FREE CASH FLOWS

Indicate whether each of the following statements is true or false. Support vour answers with relevant explanations. A) The higher the proportion of equity in a company's overall capital structure the higher return required by its debtholders.B)  In the presence of corporate taxes, a company would prefer to raide debt only when the benefits of the tax shield fully offset the cost of debt.   C) In the presence of bankruptcy risk, the cost of capital of a company with debt is always higher than the cost of capital of an unlevered company.