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| 1 | |
Which one of the following is least associated with a firm experiencing financial distress? |
| | A) | CEO resignation |
| | B) | increasing cash flows from operations |
| | C) | major stock price decline |
| | D) | decline in bond rating |
| | E) | early employee buyouts |
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| 2 | |
Which one of the following probably best describes financial distress where a firm is forced to take action? |
| | A) | positive net working capital |
| | B) | positive cash flow to creditors |
| | C) | decreasing interest expense during a period when interest rates are unchanged |
| | D) | insufficient operating cash flow to meet the current obligations of the firm |
| | E) | insufficient liquid assets to meet the capital requirements of the firm |
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| 3 | |
Flow-based insolvency is defined as: |
| | A) | the lack of financial assets. |
| | B) | the inability to pay one's debts. |
| | C) | being forced to liquidate one's assets through the bankruptcy process. |
| | D) | having negative net equity. |
| | E) | incurring repetitive net losses. |
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| 4 | |
Stock-based insolvency is defined as: |
| | A) | the lack of financial assets. |
| | B) | the inability to pay one's debts. |
| | C) | being forced to liquidate one's assets through the bankruptcy process. |
| | D) | having negative net equity. |
| | E) | incurring repetitive net losses. |
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| 5 | |
Which one of the following statements is correct? |
| | A) | Firms are limited to two bankruptcy filings. |
| | B) | Firms might be able to avoid bankruptcy if they can arrange a private restructuring. |
| | C) | Financial distress almost always leads to the demise of the firm. |
| | D) | Firms are not permitted to use mergers as a means of addressing financial distress. |
| | E) | Firms can sometimes exchange debt for equity to solve a financial distress situation. |
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| 6 | |
Which of the following can be used to deal with financial distress?
I. restructuring a firm's debt obligations
II. issuing new equity shares
III. selling a portion of the firm's operations
IV. reducing capital spending |
| | A) | I and II only |
| | B) | III and IV only |
| | C) | I, II, and IV only |
| | D) | II, III, and IV only |
| | E) | I, II, III, and IV |
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| 7 | |
Which one of the following is a means of using assets to address the problem of financial distress? |
| | A) | exchanging equity for debt |
| | B) | merging with another firm |
| | C) | filing for bankruptcy |
| | D) | negotiating with creditors |
| | E) | restructuring debt payments |
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| 8 | |
Which of the following represent ways in which a firm can benefit from financial distress?
I. changing the operating strategy
II. disposing of noncore operations
III. restructuring assets
IV. restructuring the capital structure |
| | A) | II and III only |
| | B) | III and IV only |
| | C) | II, III, and IV only |
| | D) | I, II, and III only |
| | E) | I, II, III, and IV |
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| 9 | |
In general, firms in financial distress that have more debt will: |
| | A) | have less time to structure a private workout than firms with low levels of debt. |
| | B) | tend to be forced into liquidation faster than firms with low levels of debt. |
| | C) | be forced to file Chapter 7 bankruptcy. |
| | D) | have more time to reorganize than firms with low levels of debt. |
| | E) | opt to immediately cease operations when they file for Chapter 11 bankruptcy. |
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| 10 | |
Liquidation involves: |
| | A) | selling all of a firm's assets and distributing the cash generated totally to a firm's creditors. |
| | B) | restructuring the debt and equity side of an entity. |
| | C) | paying off the existing debt of a firm and negotiating new debt contracts. |
| | D) | terminating a firm and selling the assets at book value. |
| | E) | terminating a firm and selling the assets based on their salvage value. |
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