Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 16, Problem 16P
On May 14, 2008, General Motors paid a dividend of $0.25 per share. During the same quarter GM lost a staggering $15.5 billion or $27.33 per share. Seven months later the company asked for billions of dollars of government aid and ultimately declared bankruptcy just over a year later, on June 1, 2009. At that point a share of GM was worth only a little more than a dollar.
- a. If you ignore the possibility of a government bailout, the decision to pay a dividend given how close the company was to financial distress is an example of what kind of cost?
- b. What would your answer be if GM executives anticipated that there was a possibility of a government bailout should the firm be forced to declare bankruptcy?
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On December 31, 2012, Greendale Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long-term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor, Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation’s gain on debt restructuring? (Round off present value factors to four decimal places)
a. P 1,979,180
b. P 1,600,000
c. P 1,221,020
d. P 0
2. On December 31, 2012, Greendale Corporation is experiencing extreme
financial pressure and is in default in meeting interest payments on its
long-term note of P6,000,000 due on December 31, 2013. The interest
rate is 10% payable every December 31. In an agreement with the creditor,
Greendale Corporation obtained certain changes in the terms of the note
as listed in the image below. What is Greendale Corporation's gain on debt
restructuring? (Round off present value factors to four decimal places) *
• The accrued interest of P600,000 on December 31, 2012 is forglven.
• The principal is reduced by P1,000,000.
• The new interest rate is 12%.
• The new date of maturity is December 31, 2017.
At the time of restructuring, the stated rate of interest of the original obligation prevailed in
the market for similar notes.
O a. P 1,979,180
O b. P 1,600,000
O c. P1,221,020
O d. PO
2. On December 31, 2012, Greendale 2 Corporation is experiencing extreme financial pressure and is in default in meeting interest payments on its long term note of P6,000,000 due on December 31, 2013. The interest rate is 10% payable every December 31. In an agreement with the creditor. Greendale Corporation obtained certain changes in the terms of the note as listed in the image below. What is Greendale Corporation's gain on debt restructuring? (Round off present value factors to four decimal places) *
•The accrued interest of P600,000 on December 31, 2012 is forgiven
•The principal is reduced by F1,000,000.
•The new interest rate is 12%.
•The new date of maturity is December 31, 2017.
At the time of restructuring, the stated rate of interest of the original obligation prevailed in the market for similar notes
a. P 1,979,180
b. P 1,600,000
c. P 1,221,020
d. P0
Chapter 16 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 16.1 - Prob. 1CCCh. 16.1 - Does the risk of default reduce the value of the...Ch. 16.2 - If a firm files for bankruptcy under Chapter 11 of...Ch. 16.2 - Why are the losses of debt holders whose claims...Ch. 16.3 - Prob. 1CCCh. 16.3 - True or False: If bankruptcy costs are only...Ch. 16.4 - Prob. 1CCCh. 16.4 - According to the trade-off theory, all else being...Ch. 16.5 - Prob. 1CCCh. 16.5 - Why would debt holders desire covenants that...
Ch. 16.6 - Prob. 1CCCh. 16.6 - Prob. 2CCCh. 16.7 - Coca-Cola Enterprises is almost 50% debt financed...Ch. 16.7 - Why would a firm with excessive leverage not...Ch. 16.7 - Describe how management entrenchment can affect...Ch. 16.8 - How does asymmetric information explain the...Ch. 16.8 - Prob. 2CCCh. 16.9 - Prob. 1CCCh. 16.9 - Prob. 2CCCh. 16 - Gladstone Corporation is about to launch a new...Ch. 16 - Baruk Industries has no cash and a debt obligation...Ch. 16 - When a firm defaults on its debt, debt holders...Ch. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Suppose Tefco Corp. has a value of 100 million if...Ch. 16 - You have received two job offers. Firm A offers to...Ch. 16 - As in Problem 1, Gladstone Corporation is about to...Ch. 16 - Kohwe Corporation plans to issue equity to raise...Ch. 16 - Prob. 10PCh. 16 - Prob. 11PCh. 16 - Hawar International is a shipping firm with a...Ch. 16 - Your firm is considering issuing one-year debt,...Ch. 16 - Marpor Industries has no debt and expects to...Ch. 16 - Real estate purchases are often financed with at...Ch. 16 - On May 14, 2008, General Motors paid a dividend of...Ch. 16 - Prob. 17PCh. 16 - Consider a firm whose only asset is a plot of...Ch. 16 - Prob. 19PCh. 16 - Prob. 20PCh. 16 - Prob. 21PCh. 16 - Consider the setting of Problem 21 , and suppose...Ch. 16 - Consider the setting of Problems 21 and 22, and...Ch. 16 - You own your own firm, and you want to raise 30...Ch. 16 - Empire Industries forecasts net income this coming...Ch. 16 - Ralston Enterprises has assets that will have a...Ch. 16 - Prob. 27PCh. 16 - If it is managed efficiently, Remel Inc. will have...Ch. 16 - Which of the following industries have low optimal...Ch. 16 - According to the managerial entrenchment theory,...Ch. 16 - Info Systems Technology (IST) manufactures...Ch. 16 - Prob. 32PCh. 16 - Prob. 33P
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