chap30_quest

chap30_quest - CHAPTER 30 FINANCIAL DISTRESS Answers to...

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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.
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Spring '09 term at UMBC.

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chap30_quest - CHAPTER 30 FINANCIAL DISTRESS Answers to...

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