IFM11 TB Ch25
CHAPTER 25
BANKRUPTCY, REORGANIZATION, AND LIQUIDATION
Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines.
Note: None of the questions in this chapter are algorithmic.
True/False
Easy:
(25.2) Bankruptcy issues FK Answer: a EASY
1. 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.
a. True b. False
(25.4) Bankruptcy claimants FK Answer: b EASY
2. 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. True b. False
(25.5) Doctrine of fairness FK Answer: a EASY
3. The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority.
a. True b. False
(25.5) Standard of feasibility FK Answer: a EASY
4. 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.
a. True b. False
(25.7) Social issues and bankruptcy FK Answer: b EASY
5. 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.
a. True b. False
(25.7) Social issues and bankruptcy FK Answer: a EASY
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
BANKRUPTCY, REORGANIZATION, AND LIQUIDATION
Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines.
Note: None of the questions in this chapter are algorithmic.
True/False
Easy:
(25.2) Bankruptcy issues FK Answer: a EASY
1. 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.
a. True b. False
(25.4) Bankruptcy claimants FK Answer: b EASY
2. 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. True b. False
(25.5) Doctrine of fairness FK Answer: a EASY
3. The basic doctrine of fairness under bankruptcy provisions states that claims must be recognized in the order of their legal and contractual priority.
a. True b. False
(25.5) Standard of feasibility FK Answer: a EASY
4. 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.
a. True b. False
(25.7) Social issues and bankruptcy FK Answer: b EASY
5. 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.
a. True b. False
(25.7) Social issues and bankruptcy FK Answer: a EASY
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