PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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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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Students have asked these similar questions
Bankruptcy issues:
1. Why do creditors accept a plan for financial rehabilitation rather than demand liquidation of business?
2. Would it be a sound rule liquidate whenever the liquidation value above the value of a corporation is a going concern? Discuss
Assume that a firm had such serious financial problems that it was about to be liquidated after a bankruptcy. All of the firm's assets are about to be sold in order to pay the following claims against the firm: bondholders, preferred stockholders, common stockholders, and federal income taxes. Of the claims mentioned, what priority would common stockholders have?
A.
first
B.
third
C.
second
D.
fourth
Which one of the following unsecured liabilities has the highest priority when an insolvent company is about to be liquidated?
Select one:
a.Federal income taxes payable
b.Loans made to the company by its stockholders
c.Employees' claims for salaries
d.Claims for expenses of administering the bankruptcy
e.Bank loans
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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.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_forwardIf a corporation files bankruptcy and is liquidated, who should get paid first: the corporation’s bondholders or its stockholders? Why?arrow_forward
- Matmart Corporation is contemplating seeking a voluntary liquidation of the Bankruptcy Reform Act. There are a large number of partially secured creditors who are opposed to the possibility of a liquidation and favor a restructuring of their debt, which will allow the corporation to return to profitability and positive operating cash flows. Values relevant to a possible liquidation are as follows: BookValue EstimatedNet RealizableValue Free assets consisting of cash, receivables, and securities. Inventory Equipment (net) Land. Buildings (net) Goodwill Total assets Accounts payable Note payable Accrued interest on mortgage payable Mortgage payable Unsecured creditors with priority. Total liabilities $ 125,000 420,000 180,000 300,000 1,200,000 300,000 $2,525,000 $ 340,000 600,000 24,000 1,000,000 70,000 $2,034,000 $ 85,000 330,000 120,000 350,000 1,000,000 $1,885,000 Of the net realizable value of inventory, $200,000 is pledged against $250,000 of accounts…arrow_forward30. Which of the following are true about bankrupt firms in reorganization? A. They may cancel their collective bargaining agreements B. They must settle liabilities for full face value C. They must fund all pension plans in full D. They lose their tax loss carryforwards E. All of the above 31. Which of the following claims has priority in a Chapter 7 bankruptcy? A. Claims of unsecured creditors B. Taxes legally due and owed C. Unsecured customer deposits, not to exceed $900 each D. Wages of not more than $2,000 per worker E. All of the above have equal priority 32. Microsoft Corp has an Altman’s Z score of 12.8. How likely is the company to go bankrupt? A. Highly probable B. Unsure C. Unlikely D. Insufficient information E. None of the above 33. Honkaby Service Inc has a Working Capital/Total Assets ratio of 0.2, a Retained Earnings/Total Assets Ratio of 0.1, an EBIT/Total Assets ratio of 0.25, a Market value of equity/Book value of total liabilities ratio of 0.6, and a…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
- Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy: The company has a reorganization value of $600,000. a. Describe the rules to determine whether to apply fresh start accounting to Kansas City. b. If fresh start accounting is appropriate, how will this company’s assets be reported? c. If a Goodwill account is recognized in a reorganization, where should it be reported? What happens to this balance?arrow_forwardChoose the correct. 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 stock-holders 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_forwardWhat accounting is made for professional fees incurred during a bankruptcy reorganization?a. They must be expensed immediately.b. They must be capitalized and written off over 180 months or less.c. They must be capitalized until the company emerges from the reorganization.d. They are either expensed or capitalized, depending on the nature of the expenditure.arrow_forward
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