Firm Valuation and Continuation Decision Quiz
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Questions and Answers

What are some of the major causes of business failure according to the text?

  • Technological advancements, industry stability, and consistent consumer demand
  • Economic growth, stable industries, and consistent consumer tastes
  • Demographic changes, technological advancements, and industry competition
  • General economic conditions, industry trends, and consumer tastes (correct)
  • Which financial factor is mentioned as a cause of business failure?

  • Insufficient debt
  • Stable interest rates
  • Optimal interest rates
  • Too much debt (correct)
  • What does the text state about the combination of factors leading to business failures?

  • A number of factors combine to make businesses unsustainable (correct)
  • Combining factors usually make businesses sustainable
  • Multiple factors never affect business sustainability
  • It is rare for multiple factors to contribute to business unsustainability
  • Which is not mentioned as a cause of business failure in the text?

    <p>Decrease in interest rates</p> Signup and view all the answers

    Apart from financial factors, what other non-financial factor contributes to business failure according to the text?

    <p>Changing demographics</p> Signup and view all the answers

    In the context of business failure according to the text, what role do general economic conditions play?

    <p>They can contribute to business failure</p> Signup and view all the answers

    Based on the text, what is the main reason for the fluctuation in the failure rate of businesses?

    <p>State of the economy</p> Signup and view all the answers

    What factor contributes to smaller firms being more prone to bankruptcy?

    <p>Greater reliance on external sources</p> Signup and view all the answers

    In the financial distress process, what distinguishes technical insolvency from insolvency in bankruptcy?

    <p>Temporary vs. permanent problem</p> Signup and view all the answers

    Why are larger firms more likely to receive external support during financial difficulties?

    <p>Greater impact on the economy</p> Signup and view all the answers

    What is the primary restriction mentioned regarding copying and duplication of the provided content?

    <p>Permission required for classroom use</p> Signup and view all the answers

    Do business failures occur evenly over time according to the text?

    <p>No, they fluctuate with the economy</p> Signup and view all the answers

    Who might control the firm during liquidation or reorganization?

    <p>Creditors</p> Signup and view all the answers

    Why might informal remedies be preferable to formal bankruptcy?

    <p>To avoid legal costs associated with formal procedures</p> Signup and view all the answers

    What is a 'workout' in the context of informal reorganization?

    <p>A voluntary informal reorganization plan</p> Signup and view all the answers

    Which parties are typically most suitable for informal remedies in financial distress situations?

    <p>Small businesses</p> Signup and view all the answers

    What is an informal reorganization in the context of financial distress?

    <p>Informal negotiations to restructure a firm's debts</p> Signup and view all the answers

    In financial distress, what does the term 'informal liquidation' refer to?

    <p>Voluntary winding-down of the business without court intervention</p> Signup and view all the answers

    What is the purpose of debtor in possession (DIP) financing in bankruptcy?

    <p>To allow the bankrupt firm to submit a reorganization plan and obtain financing.</p> Signup and view all the answers

    What is a key advantage of a prepackaged bankruptcy?

    <p>Obtains creditors' agreement to plan before filing for bankruptcy.</p> Signup and view all the answers

    Which group typically has the highest priority of claims in bankruptcy?

    <p>Secured creditors.</p> Signup and view all the answers

    What does 'cramdown' refer to in bankruptcy?

    <p>Majority approval needed from each creditor class for the reorganization plan.</p> Signup and view all the answers

    What problem does a prepackaged bankruptcy aim to avoid?

    <p>Conflicts arising due to creditors not agreeing on a plan.</p> Signup and view all the answers

    What is the purpose of a typical priority of claims in bankruptcy?

    <p>To define the order in which different types of claims are settled.</p> Signup and view all the answers

    Which type of claims typically have a higher priority in bankruptcy proceedings?

    <p>Taxes due</p> Signup and view all the answers

    What is one common criticism of current bankruptcy laws?

    <p>Companies stay alive too long even when they have no hope.</p> Signup and view all the answers

    Who are some of the entities criticized for siphoning off too much value in bankruptcy cases?

    <p>Managers</p> Signup and view all the answers

    What type of liabilities are typically considered before the claims of general (unsecured) creditors in bankruptcy?

    <p>Unsecured claims for customer deposits</p> Signup and view all the answers

    Which stakeholders are usually at the bottom of the priority list in bankruptcy proceedings?

    <p>Common stockholders</p> Signup and view all the answers

    How do companies in bankruptcy potentially impact other companies in the same industry?

    <p>By harming other companies in the industry</p> Signup and view all the answers

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