Which of the following is the best deﬁnition of reorganization?
A) The tax saving attained by a ﬁrm from interest expense.
B) Termination of the ﬁrm as a going concern.
C) The value of the ﬁrm is independent of its capital structure.
D) A ﬁrm's cost of equity capital is a positive linear function of its capital structure.
E) Financial restructuring of a failing ﬁrm to attempt to continue operations as a going concern.

Question

Quizplus · Accepted Answer

Reorganization refers to the financial restructuring of a failing firm in order to attempt to continue its operations as a going concern. This can involve various methods such as debt restructuring, asset sales, and management changes. Option A refers to tax savings related to interest expense, which is not relevant to reorganization. Option B refers to termination of a firm rather than reorganization. Option C refers to the Modigliani-Miller theorem, which states that a firm's value is independent of its capital structure under certain assumptions, but this is not a definition of reorganization. Option D refers to the capital structure theory, which explains how a firm's cost of equity capital can be affected by its capital structure, but this is also not a definition of reorganization.

Which of the Following Is the Best Deﬁnition of Reorganization