Firm Valuation and Continuation Decision Quiz

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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?

Decrease in interest rates (D) Signup and view all the answers

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

Changing demographics (D) Signup and view all the answers

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

They can contribute to business failure (D) Signup and view all the answers

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

State of the economy (A) Signup and view all the answers

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

Greater reliance on external sources (D) Signup and view all the answers

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

Temporary vs. permanent problem (B) Signup and view all the answers

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

Greater impact on the economy (D) Signup and view all the answers

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

Permission required for classroom use (D) Signup and view all the answers

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

No, they fluctuate with the economy (C) Signup and view all the answers

Who might control the firm during liquidation or reorganization?

Creditors (C) Signup and view all the answers

Why might informal remedies be preferable to formal bankruptcy?

To avoid legal costs associated with formal procedures (A) Signup and view all the answers

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

A voluntary informal reorganization plan (D) Signup and view all the answers

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

Small businesses (B) Signup and view all the answers

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

Informal negotiations to restructure a firm's debts (C) Signup and view all the answers

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

Voluntary winding-down of the business without court intervention (A) Signup and view all the answers

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

To allow the bankrupt firm to submit a reorganization plan and obtain financing. (D) Signup and view all the answers

What is a key advantage of a prepackaged bankruptcy?

Obtains creditors' agreement to plan before filing for bankruptcy. (D) Signup and view all the answers

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

Secured creditors. (D) Signup and view all the answers

What does 'cramdown' refer to in bankruptcy?

Majority approval needed from each creditor class for the reorganization plan. (C) Signup and view all the answers

What problem does a prepackaged bankruptcy aim to avoid?

Conflicts arising due to creditors not agreeing on a plan. (D) Signup and view all the answers

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

To define the order in which different types of claims are settled. (C) Signup and view all the answers

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

Taxes due (C) Signup and view all the answers

What is one common criticism of current bankruptcy laws?

Companies stay alive too long even when they have no hope. (A) Signup and view all the answers

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

Managers (C) Signup and view all the answers

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

Unsecured claims for customer deposits (B) Signup and view all the answers

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

Common stockholders (C) Signup and view all the answers

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

By harming other companies in the industry (C) Signup and view all the answers