Final Exam Essay

• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test?

When considering bankruptcy, pre-bankruptcy planning is one of the most important steps for Harv and Lois. In a Chapter 7 bankruptcy, the TIB will take all non-exempt valuable property that he can sell to distribute the money to the creditors. The main idea behind the Chapter 7 bankruptcy is ‘liquidation’. However, Harv and

How do free cash flows and the weighted average cost of capital interact to determine a firm’s value?

-3 x 1.66 pts. = minus 5 pts. = 45 pts. out of 50 pts. = 90%

a) In the first set of calculations, the staff used a discount rate of 20%, a five-year time horizon, and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives?

Hicks, Jennifer. “Overview of the Lottery.” Chattanooga State. Detroit: Gale, 2002. From Literature Resource Center.

What is the relative humidity when the air temperature is 75 degrees Fahrenheit and the Wet Bulb temperature is 65 degrees Fahrenheit?

a. Determine the value of the firm at the above debt levels. What level of debt should the firm

2. to avoid the company dwindling away assets and further reducing any return to creditors.

b. Other indications of financial difficulties (default on loan or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets).

b. The firm is required to make a cash payment for the goods or services.

a. What risk-free rate and risk premium did you use to calculate the cost of equity?

Also, as our lecture mentioned, S588G states that Directors have a duty to prevent their company incurring debts when the company is insolvent or would

b. The company may be able to avoid bankruptcy but it will be hard. They will need to do several things.

Which is more common, involving financial reorganization of the company. All pending collection attempts are automatically suspended, and the company’s existing management is given the opportunity to propose a reorganization plan. While developing the plan, management continues to operate the business as usual.