Question 1

Which of the following statements is most CORRECT?

Accepted Answer

A)  Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. 
B)  All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management. 
C)  Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act. 
D)  "Restructuring" a firm's debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt's maturity or its contractual interest rate. 
E)  Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and have remained unaltered since that time. 
A)  Federal bankruptcy law deals only with corporate bankruptcies. Municipal and personal bankruptcy are governed solely by state laws. 
B)  All bankruptcy petitions are filed by creditors seeking to protect their claims against firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management. 
C)  Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act. 
D)  "Restructuring" a firm's debt can involve forgiving a certain portion of the debt, but it cannot call for changing the debt's maturity or its contractual interest rate. 
E)  Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and have remained unaltered since that time. C

Question 2

The primary test of feasibility in a reorganization is whether the firm's fixed charges after reorganization can be covered by its projected cash flows.

Accepted Answer

A) True 
 B)False  True

Question 3

What would be the priority of the claims as to the distribution of assets in a liquidation under Chapter 7 of the Bankruptcy Act? 1 is the highest claim,5 is the lowest. (1)Trustees' costs to administer and operate the firm.
(2)Common stockholders.
(3)General,or unsecured,creditors.
(4)Secured creditors,who have a claim to the proceeds from the sale of specific property pledged to secure a loan.
(5)Taxes due to federal and state governments.

Accepted Answer

A)  5, 4, 1, 3, 2 
B)  4, 1, 5, 3, 2 
C)  5, 1, 4, 2, 3 
D)  1, 5, 4, 3, 2 
E)  1, 4, 3, 5, 2 
A)  5, 4, 1, 3, 2 
B)  4, 1, 5, 3, 2 
C)  5, 1, 4, 2, 3 
D)  1, 5, 4, 3, 2 
E)  1, 4, 3, 5, 2 B

Question 4

Even if a firm's cash flow projections indicate that it will soon be unable to meet its interest payments,a bankruptcy case cannot begin until the firm actually defaults on a scheduled payment.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is most CORRECT?

Accepted Answer

A)  The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. 
B)  The basic doctrine of fairness states that all debtholders must be treated equally. 
C)  Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the "public interest" is not a relevant concern. 
D)  While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. 
E)  To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually. 
A)  The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. 
B)  The basic doctrine of fairness states that all debtholders must be treated equally. 
C)  Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the "public interest" is not a relevant concern. 
D)  While a firm is in bankruptcy, the existing management is always allowed to retain control, though the court will monitor its actions closely. 
E)  To a large extent, the decision to dissolve a firm through liquidation versus keeping it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

Question 6

Bankruptcy laws have been used to help reach settlements in major product liability lawsuits.By using financial projections to show that contingent claims against the company jeopardize its existence,agreements are reached,partially satisfying claimants,and allowing the firm to continue operating.

Accepted Answer

A) True 
 B)False

Question 7

The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority.

Accepted Answer

A) True 
 B)False

Question 8

In the event of bankruptcy under the federal bankruptcy laws,debtholders have a prior claim to a firm's income and assets before both common and preferred stockholders.Moreover,in a bankruptcy all debtholders are treated equally as a single class of claimants.

Accepted Answer

A) True 
 B)False

Question 9

A central question that must be addressed in bankruptcy proceedings is whether the firm's inability to meet scheduled interest payments results from a temporary cash flow problem or from a potentially permanent problem caused by falling asset values.

Accepted Answer

A) True 
 B)False

Question 10

Bankruptcy plays no role in settling labor disputes and product liability suits.Such issues are outside the bounds of bankruptcy law and are covered by other statutes.

Accepted Answer

A) True 
 B)False

Question 11

Chapter 7 of the Bankruptcy Act is designed to do which of the following?

Accepted Answer

A)  Establish the rules of reorganization for firms with projected cash flows that eventually will be sufficient to meet debt payments. 
B)  Ensure that the firm is viable after emerging from bankruptcy. 
C)  Allow the firm to negotiate with each creditor individually. 
D)  Provide safeguards against the withdrawal of assets by the owners of the bankrupt firm and allow insolvent debtors to discharge all of their obligations and to start over unhampered by a burden of prior debt. 
E)  Protect shareholders against creditors. 
A)  Establish the rules of reorganization for firms with projected cash flows that eventually will be sufficient to meet debt payments. 
B)  Ensure that the firm is viable after emerging from bankruptcy. 
C)  Allow the firm to negotiate with each creditor individually. 
D)  Provide safeguards against the withdrawal of assets by the owners of the bankrupt firm and allow insolvent debtors to discharge all of their obligations and to start over unhampered by a burden of prior debt. 
E)  Protect shareholders against creditors.

Question 12

One of the actions that can be taken in bankruptcy under the standard of feasibility is to replace existing management with a new team if the quality of management is judged to have been substandard.

Accepted Answer

A) True 
 B)False

Exam 24: Bankruptcy, reorganization, and Liquidation

Which of the following statements is most CORRECT?

The primary test of feasibility in a reorganization is whether the firm's fixed charges after reorganization can be covered by its projected cash flows.

Even if a firm's cash flow projections indicate that it will soon be unable to meet its interest payments,a bankruptcy case cannot begin until the firm actually defaults on a scheduled payment.

Which of the following statements is most CORRECT?

Bankruptcy laws have been used to help reach settlements in major product liability lawsuits.By using financial projections to show that contingent claims against the company jeopardize its existence,agreements are reached,partially satisfying claimants,and allowing the firm to continue operating.

The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority.

In the event of bankruptcy under the federal bankruptcy laws,debtholders have a prior claim to a firm's income and assets before both common and preferred stockholders.Moreover,in a bankruptcy all debtholders are treated equally as a single class of claimants.

A central question that must be addressed in bankruptcy proceedings is whether the firm's inability to meet scheduled interest payments results from a temporary cash flow problem or from a potentially permanent problem caused by falling asset values.

Bankruptcy plays no role in settling labor disputes and product liability suits.Such issues are outside the bounds of bankruptcy law and are covered by other statutes.

Chapter 7 of the Bankruptcy Act is designed to do which of the following?

One of the actions that can be taken in bankruptcy under the standard of feasibility is to replace existing management with a new team if the quality of management is judged to have been substandard.

An Overview of Financial Management and the Financial Environment

Financial Statements, cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, bond Valuation, and Interest Rates

Risk and Return

Valuation of Stocks and Corporations

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Agency Conflicts and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, seasoned Offerings, and Investment Banks

Extension 18 A: Rights Offerings

Lease Financing

Hybrid Financing: Preferred Stock, warrants, and Convertibles

Dynamic Capital Structures

Mergers and Corporate Control

Enterprise Risk Management

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not For Profit Businesses

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