CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 30, Problem 10CQ
Bankruptcy versus Private Workouts Why do so many firms file for legal bankruptcy when private workouts are so much less expensive?
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What are some situations other than immediate financial distressthat lead firms to file for bankruptcy?
Explain how a firm that never files for bankruptcy can still suffer from indirect bankruptcy costs.
Topic: Leverage and Capital Structure
Question: Explain how a firm that never files for bankruptcy can still suffer from indirect bankruptcy costs. (3 to 10 complete sentences)
"Loss of valuable employees is an example of indirect costs of bankruptcy."
True
O False
Chapter 30 Solutions
CNCT ACC CORPORATE FINANCE
Ch. 30 - Prob. 1CQCh. 30 - Prob. 2CQCh. 30 - Prepackaged Bankruptcy What is prepackaged...Ch. 30 - Prob. 4CQCh. 30 - Prob. 5CQCh. 30 - APR What is the absolute priority rule?Ch. 30 - DIP Loans What are DIP loans? Where do DIP loans...Ch. 30 - Bankruptcy Ethics Firms sometimes use the threat...Ch. 30 - Bankruptcy Ethics Several firms have entered...Ch. 30 - Bankruptcy versus Private Workouts Why do so many...
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- Indirect bankruptcy costs include all of the following, except: Multiple Choice O The costs of departing employees. The shareholders taking over management of the firm. O High value projects are put on hold. Profitable investments are postponed. Management is distracted from operating the business.arrow_forwardSelect only the false statement below: a. Because many aspects of the bankruptcy process are independent of the size of the firm, the costs are typically higher, in percentage terms, for smaller firms. b. Aside from the direct legal and administrative costs of bankruptcy, many other indirect costs are associated with financial distress (whether or not the firm has formally filed for bankruptcy). c. Although indirect costs of bankruptcy are difficult to measure accurately, they are typically much smaller than the direct costs of bankruptcy. d. Bankruptcy protection can be used by management to delay the liquidation of a firm that should be shut down.arrow_forwardExplain how a firm loses value during the bankruptcy process from both a creditors and a shareholders perspective.arrow_forward
- Which of the following statements regarding bankruptcy is not true? A. Companies can be forced into involuntary bankruptcy by the creditors. B. Companies cannot be forced into involuntary bankruptcy by the creditors. C. Bankruptcy can result in a company liquidating its assets with the distribution of those proceeds to creditors. D. Bankruptcy can result in financial reorganization and continued existence.arrow_forwardWhat is feasibility (in bankruptcy)?arrow_forwardIf someone owes you money, that person or business goes into bankruptcy why would it make a difference if you were a secured or unsecured creditor ?arrow_forward
- What is fairness (in bankruptcy)?arrow_forwardIn case of bankruptcy: Preferred shareholders get their money first, then creditors, common shareholders are the last group to get their money back Bondholders get their money first, then preferred shareholders, common shareholders are the last group to get their money back Preferred shareholders get their money first, then banks, common shareholders are the last group to get their money back None of the abovearrow_forwardHow can a company use a bankruptcy to abrogatelabor contracts? Has this occurred in certain industries in recent years?arrow_forward
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