Question

For each of the following statements about bankruptcy, label ALL those that are true:

a) A firm that has difficulty convincing its holdouts to exchange their bonds may force this solution on them by a prepackaged bankruptcy if a majority of its bondholders are in favor of the exchange offer.

b) A manager of a firm that is unable to post an operating profit would prefer traditional Chapter 11 over an exchange offer

c) A firm with no hope of going forward as a going concern and must be liquidated will most easily complete the liquidation by doing an exchange offer.

d) Debtor in possession financing is available to firms in bankruptcy, regardless of whether the firm has entered bankruptcy via a prepackaged plan or a traditional plan

Answer 1

a) A firm that has difficulty convincing its holdouts to exchange their bonds may force this solution on them by a prepackaged bankruptcy if a majority of its bondholders are in favor of the exchange offer. - FALSE

REASON: In case ofSettling of bonds a firm can have other methods than bankruptancy

b) A manager of a firm that is unable to post an operating profit would prefer traditional Chapter 11 over an exchange offer - TRUE

RESON : When a firm cannot produce operating profit the it is needed to bne shut down because otherwise it will lead to huge loss for share holders

c) A firm with no hope of going forward as a going concern and must be liquidated will most easily complete the liquidation by doing an exchange offer. - TRUE

REASON : When a firm have no hope in going concern it can be winded up as early as possible before the loss of equity and firms funds ends .Wasteage of fund can be avoided

d) Debtor in possession financing is available to firms in bankruptcy, regardless of whether the firm has entered bankruptcy via a prepackaged plan or a traditional plan - FALSE

REASON : Debtors can be settled in many more ways. Bankruptcy is the last way where no other options are available