chap030 - Chapter 30 FINANCIAL DISTRESS SLIDES 30.1 30.2...

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Chapter 30 FINANCIAL DISTRESS SLIDES CHAPTER ORGANIZATION 30.1 What Is Financial Distress? 30.2 What Happens in Financial Distress? 30.3 Bankruptcy Liquidation and Reorganization Bankruptcy Liquidation Bankruptcy Reorganization 30.4 Private Workout or Bankruptcy: Which Is Best? The Marginal Firm Holdouts Complexity Lack of Information 30.1 Key Concepts and Skills 30.2 Chapter Outline 30.3 What Is Financial Distress? 30.4 Insolvency 30.5 Insolvency 30.6 Largest U.S. Bankruptcies 30.7 What Happens in Financial Distress? 30.8 What Happens in Financial Distress? 30.9 Responses to Financial Distress 30.10 Bankruptcy Liquidation and Reorganization 30.11 Bankruptcy Liquidation 30.12 Bankruptcy Liquidation: Priority of Claims 30.13 Absolute Priority Rule in Practice 30.14 Reasons for Absolute Priority Rule Violations 30.15 Bankruptcy Reorganization: Chapter 11 30.16 Private Workout or Bankruptcy: Whish Is Best? 30.17 Private Workout or Bankruptcy: Whish Is Best? 30.18 Prepackaged Bankruptcy 30.19 Quick Quiz
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A-100 CHAPTER 30 30.5 Prepackaged Bankruptcy ANNOTATED CHAPTER OUTLINE Slide 30.0 Chapter 30 Title Slide Slide 30.1 Key Concepts and Skills Slide 30.2 Chapter Outline 30.1. What Is Financial Distress? Slide 30.3 What Is Financial Distress? The text defines financial distress as: "a situation where a firm's operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action." The most important point is that the firm is forced to take actions that it would not otherwise choose. Slide 30.4 – Slide 30.5 Insolvency Stock-based insolvency occurs when the value of assets is less than the value of promised payments to debt. Flow-based insolvency occurs when operating cash flows are insufficient to cover contractually required payments. Lecture Tip : Flow-based insolvency typically results in more immediate actions, and often leads to bankruptcy. Stock-based insolvency is commonly regarded as a signal of financial distress. For example, during the S&L crisis many U.S. banks and S&L's were solvent in terms of cash flow but were stock-based insolvent, i.e., asset values were below liability values. Current accounting and regulatory practices allow S&L's to continue operating despite stock-based insolvency. Stock-based insolvent S&L's often are not reorganized by the Resolution Trust Corporation (RTC) until they face a flow-based crisis. The RTC is the federal agency charged with reorganizing the assets and liabilities of insolvent financial institutions. Slide 30.6 Largest U.S. Bankruptcies 30.2. What Happens in Financial Distress?
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CHAPTER 30 A-101 Slide 30.7 – Slide 30.8 What Happens in Financial Distress? Financial distress can serve as the firm's "early warning" signal.
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.

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chap030 - Chapter 30 FINANCIAL DISTRESS SLIDES 30.1 30.2...

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