Ross. Westerfield. Jaffe. Jordan Chapter 30 Solution

Ross. Westerfield. Jaffe. Jordan Chapter 30 Solution -...

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CHAPTER 30 B- 1 CHAPTER 30 FINANCIAL DISTRESS Answers to Concepts Review and Critical Thinking Questions 1. Financial distress is often linked to insolvency. Stock-based insolvency occurs when a firm has a negative net worth. Flow-based insolvency occurs when operating cash flow is insufficient to meet current obligations. 2. Financial distress frequently can serve as a firm’s “early warning” sign for trouble. Thus, it can be beneficial since it may bring about new organizational forms and new operating strategies. 3. A prepackaged bankruptcy is where the firm and most creditors agree to a private reorganization before bankruptcy takes place. After the private agreement, the firm files for formal bankruptcy. The biggest advantage is that a prepackaged bankruptcy is usually cheaper and faster than a traditional bankruptcy. 4. Just because a firm is experiencing financial distress doesn’t necessarily imply the firm is worth more dead than alive. 5. Liquidation occurs when the assets of a firm are sold and payments are made to creditors (usually based upon the APR). Reorganization is the restructuring of the firm's finances.
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This note was uploaded on 04/18/2010 for the course FINANCE 936116531 taught by Professor Wuyiling during the Spring '10 term at Nashville State Community College.

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Ross. Westerfield. Jaffe. Jordan Chapter 30 Solution -...

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