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CHAPTER 16
FINANCIALLY TROUBLED VENTURES: TURNAROUND
OPPORTUNITIES?
True–False Questions
the relevant financing and operating decisions faced are either restructuring or
liquidating.
and operating decisions encountered are to go public, or to sell or merge the firm.
obligations.
total debt.
net worth.
meet its current contractual debt obligations.
meet the venture’s current contractual equity obligations.
obligations asset flow insolvency exists.
operations, and over one-half of new ventures dissolve within four years.
relative to its costs.
cutting costs relative to the ventures revenues.
relative to current revenues.
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relationship and/or selling off fixed assets.
liquidated via Chapter 7 bankruptcies.
relationships and/or selling off fixed assets.
its shareholders that provides for a financial restructuring of the venture’s
outstanding debt.
assignment.
T. 23. The common pool problem exists because individual creditors have the
incentive to foreclosure on the venture even though it is worth more as a going
concern.
obligations
owed on loans in default
venture liquidate all other loans.
obligations on a loan become immediately due when default occurs.
principal obligations on a loan to become immediately due.
owed on loans in default.
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venture in the hopes of making a larger individual recovery, it is said that a
“holdout problem” has arisen.
claims against the venture.
principal payments.
Multiple-Choice Questions
is not a basis for operating or financial decisions?
a. screening business ideas
b. preparing the business plan
c. obtaining seed financing
d. managing the ongoing operations
a basis for operating or financial decisions?
a. creating and building value
b. choosing organizational form
c. preparing initial financial statements
d. obtaining startup financing
not a basis for operating or financial decisions?
a. monitoring financial performance
b. obtaining seasoned financing
c. projecting cash needs
d. obtaining first round financing
is not a basis for operating or financial decisions?
a. creating and building value
b. obtaining additional financing
c. choosing the organizational structure
d. examining exit opportunities
not a basis for operating or financial decisions?
a. managing ongoing operations
b. maintaining and adding value
c. obtaining seasoned financing
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d. obtaining seed financing
this is referred to as:
a. financial distress
b. balance sheet insolvency
c. bankruptcy
d. liquidation
payments when due?
a. insolvency
b. loan default
c. acceleration provision
d. cross default provision
e. foreclosure
a. negative net worth
b. total liabilities greater than total assets
c. negative retained earnings but positive net worth
d. a and b above
e. a, b, and c above
obligations on a loan become immediately due when default occurs?
a. insolvency
b. loan default
c. acceleration provision
d. cross default provision
e. foreclosure
in default?
a. insolvency
b. loan default
c. acceleration provision
d. cross default provision
e. foreclosure
collect amounts owed on loans in default?
a. insolvency
b. loan default
c. acceleration provision
d. cross default provision
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e. foreclosure
cash flow is insufficient to meet current debt obligations refers to which of the
following?
a. insolvency
b. loan default
c. acceleration provision
d. cross default provision
e. foreclosure
opportunity, which of the following won’t apply?
a. operations restructuring
b. asset restructuring
c. private liquidation
d. financial restructuring
reorganize, which is not likely to be a possible outcome?
a. Chapter 7 liquidation
b. merge the venue
c. restructuring of assets
d. reorganize and continue to operate
and a cost of goods sold of $522,000. What were the days sales outstanding?
a. 91 days
b. 48 days
c. 36 days
d. 5 days
e. 4 days
accounts receivable of $214,000. What is your inventory conversion period?
a. 131 days
b. 152 days
c. 168 days
d. 98 days
e. 76 days
$30,000. What is your firm’s average investment in accounts receivables?
a. $3,650
b. $3,000
c. $1,000
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d. $ 822
e. $ 444
a. improving the working-capital-to-sales relationship
b. growing revenues relative to costs
c. changing the contractual terms of existing debt obligations
d. cutting costs relative to the venture’s revenues
e. a and c above
f. b and d above
a. improving the working-capital-to-sales relationship
b. postponing due dates for interest and principal payments
c. selling off fixed assets
d. cutting costs relative to the venture’s revenues
e. a and c above
f. b and d above
a. growing revenues relative to costs
b. cutting costs relative to revenues
c. reducing net working capital
d. reducing the cash conversion cycle
e. a and b above
f. c and d above
a. improving the working capital to sales relationship
b. selling off fixed assets
c. growing revenues
d. cutting costs relative to revenues
e. a and b above
f. c and d above
a. growing revenues relative to costs
b. reducing the cash conversion cycle
c. debt payments extension
d. debt composition change
e. a and b above
f. c and d above
a. improving the working-capital-to-sales relationship
b. growing revenues relative to costs
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c. changing the composition of existing debt claims against the venture
d. cutting costs relative to the venture’s revenues
e. a and c above
f. b and c above
existing debt obligations?
a. debt payment extensions
b. asset restructuring
c. financial restructuring
d. debt composition change
principal on loans and payments on credit purchases?
a. debt payment extensions
b. asset restructuring
c. financial restructuring
d. debt composition change
claims against the venture?
a. debt payment extensions
b. asset restructuring
c. financial restructuring
d. debt composition change
default is known as:
a. the acceleration provision
b. the holdout provision
c. foreclosure
d. a private workout
though it is worth more as a going concern, it is said that there is a:
a. common pool problem
b. holdout problem
c. solvency problem
d. cram-down problem
foreclosure to try to recover their individual claims?
a. automatic stay provision
b. holdout problem
c. cram down procedure
d. net worth requirements
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reorganization plan for all creditors including dissenting creditor classes?
a. automatic stay provision
b. holdout problem
c. cram down procedure
d. net worth requirements
during a bankruptcy is known as the:
a. cram-down procedure
b. absolute priority rule
c. prepackaged bankruptcy rule
d. involuntary bankruptcy rule
under which one of the following chapters?
a. Chapter 1
b. Chapter 5
c. Chapter 7
d. Chapter 11
e. Chapter 13
under which one of the following chapters?
a. Chapter 1
b. Chapter 5
c. Chapter 7
d. Chapter 11
a. successful reorganization and the continuation of operations
b. liquidation under Chapter 7 bankruptcy legislation
c. a government bailout resulting in continued operations at the expense
of operational independence from the government
d. merging the venture with another firm
e. a and b
f. c and d
a. operations restructuring
b. financial restructuring
c. asset restructuring
d. all of the above
e. none of the above
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a. 1776-1778
b. 1830-1833
c. 1978-1979
d. 2006-2007