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What is cost of financial distress to the firm without going bankrupt?Give two examples.
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- What are the options available to a company in the event of a financial failure?What are the possible actions that a firm can take if it experiences a financial failure?One of the indirect costs of financial distress is having to sell assets at lower than market value. Using examples explain what this is and how it could effect the value of a firm.
- How can a company expand itself out of business, and how can a finance management prevent this from happening?Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?If you are in financial hardship, explain what it means. If we suppose that financial hardship occurs, explain how and why financial distress would make a company's stock more hazardous.
- Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy and agency costs is reduced. Debt is often the least costly form of financing for a firm. Firms should probably use some debt in their capital structure. Different firms are subject to different levels of risk.What affect would an increase in the costs of bankruptcy have on the capital structure of a firm? Question 4 options: Higher bankruptcy costs make debt less expensive, so firms will use more debt and less equity. Higher bankruptcy costs make debt more expensive, so firms will use less debt and more equity. Bankruptcy costs have no impact on the capital structure decision.
- Indicate whether the following statement is true or false.Provide the relevant explanations. 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. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)What are the possible actions when a business becomes insolvent?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.
