Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 30, Problem 9CQ
Bankruptcy Ethics Several firms have entered bankruptcy, or threatened to enter bankruptcy, at least in part as a means of reducing labor costs. Whether this move is ethical, or proper, is hotly debated. Is this an ethical use of bankruptcy?
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What are some situations other than immediate financial distressthat lead firms to file for bankruptcy?
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.
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.
Chapter 30 Solutions
Corporate Finance
Ch. 30 - Prob. 1CQCh. 30 - Prob. 2CQCh. 30 - Prepackaged Bankruptcy What is prepackaged...Ch. 30 - Prob. 4CQCh. 30 - Prob. 5CQCh. 30 - APR What is the absolute priority rule?Ch. 30 - DIP Loans What are DIP loans? Where do DIP loans...Ch. 30 - Bankruptcy Ethics Firms sometimes use the threat...Ch. 30 - Bankruptcy Ethics Several firms have entered...Ch. 30 - Bankruptcy versus Private Workouts Why do so many...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.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? Discussarrow_forwardAccording to critics, what are some problems with the bankruptcysystem?arrow_forwardIndirect bankruptcy costs include all of the following, except: Multiple Choice O The costs of departing employees. The shareholders taking over management of the firm. O High value projects are put on hold. Profitable investments are postponed. Management is distracted from operating the business.arrow_forward
- Explain how a firm loses value during the bankruptcy process from both a creditors and a shareholders perspective.arrow_forwardDifferentiate between various forms of bankruptcy and restructuring that the clients should understand. 1. Summarize the key points of interest if the company fell on hard times and had to file voluntary bankruptcy. What ethical implications should be considered when debating whether or not to file bankruptcy? 2. Identify the key areas of concern if the company fell on hard times and their creditors forced them into bankruptcy. What defenses are available in this situation? 3. Illustrate hypothetical calculations that would be done to help creditors understand how much money they might receive if the company were to liquidate. Ensure all information is entered accurately. Refer to the illustration (Exhibit 13.2) in your textbook to view potential calculations.arrow_forwardSelect only the false statement below: a. Because many aspects of the bankruptcy process are independent of the size of the firm, the costs are typically higher, in percentage terms, for smaller firms. b. Aside from the direct legal and administrative costs of bankruptcy, many other indirect costs are associated with financial distress (whether or not the firm has formally filed for bankruptcy). c. Although indirect costs of bankruptcy are difficult to measure accurately, they are typically much smaller than the direct costs of bankruptcy. d. Bankruptcy protection can be used by management to delay the liquidation of a firm that should be shut down.arrow_forward
- How does a company maintain liquidity and avoid bankruptcy during a pandemicarrow_forwardIn some cases, insolvency can lead to bankruptcy. TRUE FALSEarrow_forwardChoose the correct. An order for relief creates an automatic stay that:a. Prohibits creditors from taking action to collect from an insolvent company without court approval.b. Calls for the immediate distribution of free assets to unsecured creditors.c. Can be entered only in an involuntary bankruptcy proceeding.d. Gives an insolvent company time to file a voluntary bankruptcy petition.arrow_forward
- 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 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_forwardGeddes Ltd. Is not able to pay its debts when required, but it wants to prevent bankruptcy and continue to carry on business. Geddes Ltd. should consider . voluntarily assigning its assets to a trustee in bankruptcy petitioning for a receiving order making a proposal to its creditors avoiding creditors until it returns to financial health In which of the following circumstances will bankruptcy occur : (select all that applies) When the single largest creditor or group of creditors indicates their desire that bankruptcy should occur. When a voluntary assignment is made. None of the answers is correct. When a financial arrangement with trade creditors is not approved by the court Clark starts a music store called Megamax. The store specializes in popular music for teenagers. Later, Judy also sets up her own music store and calls it Maganax. To protect his trademark, Clark may register…arrow_forwardPlease answer the second question as well please. 2. Identify the key areas of concern if the company fell on hard times and their creditors forced them into bankruptcy. What defenses are available in this situation?arrow_forward
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