Test Bank - CHAPTER 15 FINANCIALLY TROUBLED VENTURES:...

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CHAPTER 15 FINANCIALLY TROUBLED VENTURES: TURNAROUND OPPORTUNITIES? True–False Questions T. 1. During the development, startup, and survival stages of a venture’s life cycle, the relevant financing and operating decisions faced are either restructuring or liquidating. T. 2. During the rapid growth stage of a venture’s life cycle, the relevant financing and operating decisions encountered are to go public, or to sell or merge the firm. F. 3. Foreclosure occurs when cash flows are insufficient to meet current debt obligations. F. 4. Balance sheet insolvency exists when a venture has negative net debt. F. 5. When a venture’s cash flow is insufficient to met its current contractual debt obligations asset flow insolvency exists. T. 6. Nearly one-fourth of all businesses dissolve within two years of beginning operations, and over one-half of new ventures dissolve within four years. F. 7. Chapter 11 bankruptcy filing requires liquidation of the venture. F. 8. Chapter 7 bankruptcy filing permits for the attempt to reorganize. T. 9. Asset restructuring involves improving the working capital to sales relationship and/or selling off fixed assets. F. 10. A private workout is a voluntary agreement between a venture’s owners and its shareholders that provides for a financial restructuring of the venture’s outstanding debt. T. 11. The transfer of title to the venture’s assets to a third-party trustee is called assignment. T. 12. A voluntary bankruptcy petition if filed by the venture’s management. F. 13. An involuntary bankruptcy petition is filed by the venture’s management. T. 14. The common pool problem exists because individual creditors have the incentive to foreclosure on the venture even though it is worth more as a going concern. 97
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Chapter 15: Financially Troubled Ventures: Turnaround Opportunities? T. 15. Financial distress occurs when cash flow is insufficient to meet current debt obligations T. 16. Foreclosure is the legal process used by creditors to try to collect amounts owed on loans in default F. 17. A “cross default provision” provides that defaulting on one loan makes the venture liquidate all other loans. T. 18. An “acceleration provision” provides that all future interest and principal obligations on a loan become immediately due when default occurs. F. 19. A “cross default provision” and an “acceleration provision” both cause principal obligations on a loan to become immediately due. T.
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This note was uploaded on 12/05/2009 for the course FIN Fin 595 taught by Professor Shabbir during the Spring '09 term at CSU Dominguez Hills.

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Test Bank - CHAPTER 15 FINANCIALLY TROUBLED VENTURES:...

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