Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 32, Problem 8PS
a)
Summary Introduction
To determine: Whether the statement is true or false.
b)
Summary Introduction
To determine: Whether the statement is true or false.
c)
Summary Introduction
To determine: Whether the statement is true or false.
d)
Summary Introduction
To determine: Whether the statement is true or false.
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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.
Which of the following liquidating dividend is not legal?
a. Liquidating dividend of a continuing merchandising corporation
b. Liquidating dividend of a mining corporation
c. Liquidating dividend of a wasting asset corporation
d. Liquidating dividend of a corporation at the state of bankruptcy
4.
Which statement is false concerning a Chapter 11 reorganization? a. b. C. d. The firm is allowed to remain in possession of its assets. Proceedings begin when the debtor firm files a petition with the bankruptcy court. Once confirmed, the plan of reorganization binds all parties. Creditors may agree to a longer payment period but do not settle for partial payment. a. answer a b. answer b c. answer c O d. answer d
Chapter 32 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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- Liquidation procedures 7B-1. Chapter 7 of the Bankruptcy Act is designed to do which of thefollowing?a. Provide safeguards against the withdrawal of assets by the ownersof the bankrupt firm.b. Establish the rules of reorganization for firms with projected cashflows that eventually will be sufficient to meet debt payments.c. Allow insolvent debtors to discharge all of their obligations andto start over unhampered by a burden of prior debt.d. Statements a and b are correct.e. Statements a and c are correct.arrow_forwardIf 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.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_forward
- 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_forwardWhat are some situations other than immediate financial distressthat lead firms to file for bankruptcy?arrow_forward
- What 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_forwardIn a quasi-reorganization, if paid-in-capital in excess of par value is not sufficient to absorb a deficit in retained earnings, the par value for stock may be reduced. TRUE/FALSE The dividend to general unsecured creditors is the dividend rate declared on common stock multiplied by the amount due to unsecured creditors. TRUE/FALSE A reorganization under Chapter 11 of the Bankruptcy Code Amendments will approve by the courts even if creditors receive less than would be the case with a Chapter 7 liquidation. TRUE/FALSE Under the Bankruptcy Code, a reorganization may be either voluntary or involuntary, yet a liquidation may be only voluntary. TURE/FALSEarrow_forwardDiscuss three indicators that a company is heading in a troubled status. What is the difference between corporate reorganization and liquidation as provided for under bankruptcy law.arrow_forward
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