Determine to do this dip must estimate both the

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Unformatted text preview: ibility is the valuation of the firm to determine whether reorganization is appropriate. determine • To do this DIP must estimate both the liquidation To value of the business and its value as a going concern. concern. • If the DIP finds that its value as going concern is If less than its liquidation value, it will recommend liquidation. liquidation. • If the opposite is found to be true, the DIP will If recommend reorganization. recommend • If the reorganization of the firm recommended by If the DIP, a plan of reorganization must be drawn up. the • The key portion of reorganization plan generally The concerns the firm’s capital structure. concerns • Because most firm’s financial difficulties result Because from high fixed charges, the company capital structure is generally recapitalized , or exchanged for equity, or the maturity of the existing debts are extended. extended. • Optimal capital structure has been determined, Optimal the DIP must establish a plan for exchanging outstanding obligations for new securities. outstanding •Once the DIP has determined the n...
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