Ch 25 Revised - CHAPTER 25 Bankruptcy Reorganization and...

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  1 CHAPTER 25 Bankruptcy, Reorganization, and  Liquidation
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  2 Topics in Chapter Financial distress process Federal bankruptcy law Reorganization Liquidation
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  3 What are the major causes of business failure? Economic factors industry weakness poor location/product Financial factors too much debt insufficient capital Most failures occur because a number of  factors combine to make the business  unsustainable.
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  4 Do business failures occur  evenly over time? A large number of businesses fail each  year, but the number in any one year  has never been a large percentage of  the total business population. The failure rate of businesses has  tended to fluctuate with the state of the  economy.
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  5 What size firm, large or small, is  more prone to business failure? Bankruptcy is more frequent among  smaller firms. Large firms tend to get more help from  external sources to avoid bankruptcy,  given their greater impact on the  economy.
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  6 What key issues must managers  face in the financial distress  process? Is it a temporary problem (technical  insolvency) or a permanent problem  caused by asset values below debt  obligations (insolvency in bankruptcy)? Who should bear the losses? Would the firm be more valuable if it  continued to operate or if it were  liquidated? (More... )
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  7 Key Issues  (Continued) Should the firm file for bankruptcy, or  should it try to use informal procedures? Who would control the firm during  liquidation or reorganization?
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  8 What informal remedies are  available to firms in financial  distress?
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