14. What are some situations other than immediate financial distress that lead firms to file for...

14. What are some situations other than immediate financial distress that lead firms to file for bankruptcy? Discuss the financial and ethical implications.

Expert Solution

Answer: Bankruptcy- It is a state when companies become unable to pay its debts and other obligations and file for bankruptcy.

Primary reason- Main reason of bankruptcy is financial distress, financial distress happens when companies cannot repay the loan to creditors.

Other reasons of bankruptcy- Are as following:

Market conditions- Poor market conditions such as; economic downturn, recession, depression, global crisis, lower demand in the market are the factors when company does not do well and does not manufacture products and due to lack of funds, goes bankrupt.
Poor decision making- If a company takes bad decision related to capital structure, capital budgeting or investment then it may lead to bankruptcy. Higher debt in the capital structure can lead to liquidation.
Company's life cycle- If company is in decline phase of its life cycle or its main product is at decline stage then company won't have funds to repay the obligations and will go bankrupt.
Fraud- If a company's key people do fraud and inflate financial statements, it goes bankrupt. Example: Enron and WorldCom

jeff jeffy answered 1 year ago

Why is financial distress important in business firms? What is the difference between bankruptcy and liquidation?

Think of some firms with HQs in countries other than the US, and discuss how they...

Think of some firms with HQs in countries other than the US, and discuss how they entered the US and how they manage their marketing globally. Let's focus on B2B.

What other costs of financial distress can you think about, that would need to be managed...

What other costs of financial distress can you think about, that would need to be managed by the distress investor

Define leverage. Discuss why some firms have higher leverage than other firms. Within a multinational corporation,...

Define leverage. Discuss why some firms have higher leverage than other firms. Within a multinational corporation, should subsidiaries have similar or different leverage ratios? Why?

[Costs of Financial Distress] Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is...

[Costs of Financial Distress] Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies’ economists agree that the probability of the continuation of the current expansion is 80% for the next year, the probability of a recession is 20%. If the expansion continues, each firm will generate EBIT of $ 2.4 million. If a recession occurs each firm will generate EBIT of $900,000. Steinberg’s...

Why are the indirect costs of financial distress likely to be more important than the direct...

Why are the indirect costs of financial distress likely to be more important than the direct costs of bankruptcy? (Choose the correct response.) A. Many indirect costs may be incurred even if the firm is not yet in financial distress, but simply faces a significant possibility that it may occur in the future. B. None of the above - both direct and indirects costs are equally important. C. Direct costs and costs to debt holders, whereas indirect costs affect both...

Some argue that controls on some payers lead to a shift in cost to other payers...

Some argue that controls on some payers lead to a shift in cost to other payers (and that a single-payer system is needed). What evidence would suggest cost-shifting to other third-party payers and What evidence suggests that not all the costs are shifted?

Pick an industry other than the financial sector that requires regulation. 1. describe in some detail...

Pick an industry other than the financial sector that requires regulation. 1. describe in some detail and identify the market 2. model it to make sure to set it within the IE terminology 3. clarify why it requires regulation 4. what sort of regulation should be applied to this industry and why? 5. what difficulties might face in applying regulation to this industry. P.S: this is a government and business class question.

Problem 15-6 Costs of Financial Distress Steinberg Corporation and Dietrich Corporation are identical firms except that...

Problem 15-6 Costs of Financial Distress Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 70 percent for the next year, and the probability of a recession is 30 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $4.0 million. If a recession...

Define financial management. What are some other examples of the differences between financial management and financial...

Define financial management. What are some other examples of the differences between financial management and financial accounting? Give examples.

Question