Corporate Finance Study Set 12

Business

Quiz 31 :

Financial Distress

Quiz 31 :

Financial Distress

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The management of Schroeder Books has proposed to reorganize the company. The proposal is based on a going-concern value of $2.3 million. The proposed financial structure is $500,000 in new mortgage debt, $300,000 in subordinated debt and $1,500,000 in new equity. All creditors, both secured and unsecured, are owed $3 million dollars. Secured creditors have a mortgage lien for $2,000,000 on the book bindery. The corporate tax rate is 34%. How much should the unsecured creditors receive?
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C

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The management of Magic Mobile Homes has proposed to reorganize the firm. The proposal is based on a going-concern value of $2.0 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%. How much should the unsecured creditors receive?
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A

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The management of Magic Mobile Homes has proposed to reorganize the firm. The proposal is based on a going-concern value of $2.0 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%. What will the equity holders receive if they had 5 million shares with a par value of $0.50 each?
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D

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Financial distress can be best described by which of the following situations in which the firm is forced to take corrective action?
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Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecured, are owed $2.0 million dollars. Administrative costs of liquidation and wages payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after all costs and taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%. How much and what percentage of their claim will the unsecured creditors receive, in total?
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The management of Magic Mobile Homes has proposed to reorganize the firm. The proposal is based on a going-concern value of $2.0 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%. How much should the secured creditors receive?
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Insolvency can be defined as:
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What is the correct priority of the following claims, once a corporation is determined to be bankrupt?
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The Steel Pony Company a maker of all-terrain recreational vehicles is having financial difficulties due to high interest payments. The estimated "going concern" value if Steel Pony is $4.0 million. The statement of financial position of the firm is as shown: img
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One of the various events which typically occurs around the period of financial distress for a firm is:
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The management of Schroeder Books has proposed to reorganize the company. The proposal is based on a going-concern value of $2.3 million. The proposed financial structure is $500,000 in new mortgage debt, $300,000 in subordinated debt and $1,500,000 in new equity. All creditors, both secured and unsecured, are owed $3 million dollars. Secured creditors have a mortgage lien for $2,000,000 on the book bindery. The corporate tax rate is 34%. How much should the secured creditors receive?
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Bankruptcy reorganizations are used by management to:
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Most firms in financial distress do not fail or cease to exist. In fact, many firms can actually benefit from financial distress by:
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Whether bankruptcy is entered either voluntarily or involuntarily, the major difference by CCCA and Bankruptcy and Insolvency Act is:
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A corporation is adjudged bankrupt. When do the shareholders receive any payment?
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A firm that has a series of negative earnings, sales declines and workforce reductions is likely to head:
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Which of the following statements about private workouts of financial distress is NOT true?
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Stock-based insolvency is a(an):
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The management of Schroeder Books has proposed to reorganize the company. The proposal is based on a going-concern value of $2.3 million. The proposed financial structure is $500,000 in new mortgage debt, $300,000 in subordinated debt and $1,500,000 in new equity. All creditors, both secured and unsecured, are owed $3 million dollars. Secured creditors have a mortgage lien for $2,000,000 on the book bindery. The corporate tax rate is 34%. What will the equity holders receive if they had 5 million shares with a par value of $0.50 each?
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Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecured, are owed $2.0 million dollars. Administrative costs of liquidation and wages payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after all costs and taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%. How much and what percentage of their claim will the secured creditors receive, in total?
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