Financial Distress and Bankruptcy Quiz

What is one of the signs of financial distress mentioned in the text?

• High market value

• Positive cash flow

• Low operational cash flows

• Increased sales

In the context of insolvency, what does it mean when the debt is greater than assets?

• The company has no debt

• The company has positive equity

• The company is financially stable

• The company has negative equity

What is the main difference between stock-based insolvency and flow-based insolvency?

• Stock-based insolvency is irreversible, while flow-based insolvency is reversible

• Stock-based insolvency is less serious than flow-based insolvency

• Stock-based insolvency is related to equity, while flow-based insolvency is related to operations

• Stock-based insolvency involves high cash flows, while flow-based insolvency involves low cash flows

Which company is mentioned in the text as an example of a stock-based insolvency?

• Lehman Brothers

• General Motors

• Roseto

• Chrysler

What is a common strategy mentioned in the text for companies facing financial distress?

• Increasing capital spending

• Issuing new securities

• Reducing negotiations with creditors

• Avoiding mergers

What is the purpose of amending and extending the terms of debt in financial distress?

• To delay the repayment date

• To reduce the length of the debt

• To liquidate the company

• To increase interest rates

What is the main advantage of private workouts over bankruptcy according to the text?

• Guaranteed full payment for creditors

• Faster liquidation process

• Lower attorney fees

• Higher priority for equity holders

What is the purpose of a prepackaged bankruptcy?

• To involve more creditors in the decision-making

• To delay the bankruptcy process

• To work out terms before going to court

• To increase attorney fees

What does Altman's Z-Score help determine in relation to companies?

• Profit margins

• Market share

• Employee satisfaction

• Creditworthiness

In bankruptcy, what happens to the existing debt and equity of a company?

• They are completely forgiven

• They are paid in full

• They are transferred to the government

• They are converted to preferred equity