PRIN.OF CORP.FINANCE-CONNECT ACCESS
13th Edition
ISBN: 2810023360757
Author: BREALEY
Publisher: MCG
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Chapter 32, Problem 18PS
Summary Introduction
To determine: Why there is a positive value for equity when the companies file for bankruptcy.
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Which of the following is NOT an effect of the possibility of bankruptcy?
O reduce the possible payoff to stockholders.
increase financial distress costs.
reduce the interest rate on debt.
reduce the current market value of the firm.
What is holdout problem (in bankruptcy)?
In some cases, insolvency can lead to bankruptcy.
TRUE
FALSE
Chapter 32 Solutions
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- 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.arrow_forwardWhat is feasibility (in bankruptcy)?arrow_forwardIndicate 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.)arrow_forward
- The main reason that companies declare bankruptcy is: their net worth becomes negative they run out of cash to fund maturing debt their assets are written down they sustain heavy lossesarrow_forwardWhich of the following terms refer to the situation in which a firm has negative net worth? Multiple Choice Legal bankruptcy. Liquidation. Accounting insolvency. Technical insolvency. Business failure.arrow_forwardWhat are the risks to the lender if a borrower declares bankruptcy?arrow_forward
- Why do creditors usually accept a plan for financial rehabilitation ratherthan demand liquidation of the business?arrow_forward“Bankruptcy is a convenient way to avoid paying your debts.” Discuss the accuracy of statementarrow_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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How Bankruptcy Works; Author: Two Cents;https://www.youtube.com/watch?v=tpI0XWjIsqI;License: Standard Youtube License