CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 30, Problem 9CQ
Bankruptcy Ethics Several firms have entered bankruptcy, or threatened to enter bankruptcy, at least in part as a means of reducing labor costs. Whether this move is ethical, or proper, is hotly debated. Is this an ethical use of bankruptcy?
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What are some situations other than immediate financial distressthat lead firms to file for bankruptcy?
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.
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.
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_forwardExplain how a firm loses value during the bankruptcy process from both a creditors and a shareholders perspective.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_forward
- How does a company maintain liquidity and avoid bankruptcy during a pandemicarrow_forwardDifferentiate between various forms of bankruptcy and restructuring that the clients should understand. 1. Summarize the key points of interest if the company fell on hard times and had to file voluntary bankruptcy. What ethical implications should be considered when debating whether or not to file bankruptcy? 2. Identify the key areas of concern if the company fell on hard times and their creditors forced them into bankruptcy. What defenses are available in this situation? 3. Illustrate hypothetical calculations that would be done to help creditors understand how much money they might receive if the company were to liquidate. Ensure all information is entered accurately. Refer to the illustration (Exhibit 13.2) in your textbook to view potential calculations.arrow_forwardWhat is a cram down?a. An agreement about the total amount of money to be reserved to pay creditors who have priority.b. The bankruptcy court’s confirmation of a reorganization even though a class of creditors or stockholders did not accept it.c. The filing of an involuntary bankruptcy petition, especially by the holders of partially secured debts.d. The court’s decision as to whether a particular creditor has priority.arrow_forward
- Geddes Ltd. Is not able to pay its debts when required, but it wants to prevent bankruptcy and continue to carry on business. Geddes Ltd. should consider . voluntarily assigning its assets to a trustee in bankruptcy petitioning for a receiving order making a proposal to its creditors avoiding creditors until it returns to financial health In which of the following circumstances will bankruptcy occur : (select all that applies) When the single largest creditor or group of creditors indicates their desire that bankruptcy should occur. When a voluntary assignment is made. None of the answers is correct. When a financial arrangement with trade creditors is not approved by the court Clark starts a music store called Megamax. The store specializes in popular music for teenagers. Later, Judy also sets up her own music store and calls it Maganax. To protect his trademark, Clark may register…arrow_forwardWhich one of the following best defines legal bankruptcy? A. A legal proceeding for liquidating or reorganizing a business B. The internal process of revising the capital structure of a firm C. The failure of a firm to meet its financial obligations in a timely manner D. A temporary technical insolvencyarrow_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
- Which of the following statements is false? A) In bankruptcy, management is given the opportunity to reorganize the firm and renegotiate with debt holders. B) Because a corporation is a separate legal entity, when it fails to repay its debts, the people who lent to the firm, the debt holders are entitled to seize the assets of the corporation in compensation for the default. C) As long as the corporation can satisfy the claims of the debt holders, ownership remains in the hands of the equity holders. D) If the corporation fails to satisfy debt holders' claims, debt holders may lose control of the firm.arrow_forwardWhat are the reasons for public (listed) companies bankruptcies?arrow_forwardExplain 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)arrow_forward
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