49. In a Chapter 11 setting, a firm
a.
must be liquidated.
b.
can be reorganized, but only if all creditors unanimously agree to the plan.
c.
may have the terms of its debt relaxed.
d.
none of the above.
50. Suppose a firm’s creditors decide that replacing current management is a requirement in a voluntary
reorganization. This is called
a.
an extension reorganization.
b.
a composition reorganization.
c.
a creditor control reorganization.
d.
a cram-down reorganization.
51. The legal mechanism by which inefficient firms may leave the market is
a.
economic darwinism.
b.
bankruptcy.
c.
liquidation.
d.
none of the above.
52. Economic failure occurs when
a.
a firm fails to earn a return that is greater than its cost of debt.
b.
a firm fails to earn a return that is greater than its cost of equity capital.
c.
a firm fails to earn a return that is greater than its cost of capital.
d.
both a and c.
53. When a firm’s liabilities exceed the fair market value of its assets the firm
a.
is insolvency bankrupt.
b.
is in default.
c.
is in a liquidity crisis.
d.
none of the above.
54. A modern day buggy whip maker that went out of business because of low sales really failed because
of
a.
its corporate maturity.
b.
its inability to control the business cycle.
c.
an aggressive capital structure.
d.
none of the above.
55. If an auto maker were to fail in an economic downturn then it would fail due to
a.
economic activity.
b.
corporate maturity.
c.
an overly conservative capital structure.
d.
none of the above.
56. If a firm is technically insolvent then the firm may arrange
a.
a workout.
b.
a voluntary settlement.
c.
both (a) and (b)
d.
none of the above
57. A voluntary reorganization of debts whereby a firm’s debt obligations are still expected to be paid in
full but at a later than originally scheduled date, is called
a.
a composition.
b.
an extension.
c.
creditor control.
d.
none of the above.
58. A voluntary reorganization of debts whereby a firm’s debt obligations are reorganized according to a
creditors pro-rata share of the debting firm’s total debt, is called
a.
a composition.
b.
an extension.
c.
creditor control.
d.
none of the above.
59. A reorganization of debts whereby the creditor committee decides that replacing the operating
management is the only feasible way to maintain the firm, is called
a.
a composition.
b.
an extension.
c.
creditor control.
d.
none of the above.
60. Winding up a firm’s operations, selling off its assets, and distributing the proceeds to creditors is
called
a.
reorganization.
b.
liquidation.
c.
dissolution.
d.
none of the above.
61. The procedures for liquidating a corporation reside
a.
in Chapter 7 of the Bankruptcy Reform Act of 1978.
b.
in Chapter 11 of the Bankruptcy Reform Act of 1978.
c.
Common Law.
d.
none of the above.
62. The procedures for reorganizing a failed or failing corporation reside
a.
in Chapter 7 of the Bankruptcy Reform Act of 1978.
b.
in Chapter 11 of the Bankruptcy Reform Act of 1978.
c.
Common Law.
d.
none of the above.
63. When a firm files to either reorganize or liquidate in bankruptcy all creditors of the firm
a.
are prevented from filing or continuing with lawsuits against the firm.
b.
all creditors of the firm are guaranteed to receive less than their original claim.
c.
automatically become shareholders of the firm.
d.
none of the above.
64. Which of the following situations allow for a reorganization type bankruptcy filing?
a.
a commercial bank that was caught in a cyclical downturn
b.
a firm that sells high end pork bellies but finds little market for its product
c.
an auto maker that became over-leveraged before an unexpected economic downturn
d.
both a and c
65. If an outside party files a bankruptcy petition on a firm that owes the outside party a debt, then that is
called
a.
a voluntary reorganization.
b.
an involuntary reorganization.
c.
a liquidation.
d.
none of the above
66. Which party is responsible for filing a reorganization plan to the court in a case of bankruptcy?
a.
the shareholders
b.
the debtholders
c.
the debtor in possession
d.
all of the above
67. Within the bankruptcy process when debts are exchanged for equity or the maturity of existing debts
are extended, this is called
a.
a recapitalization.
b.
a reprioritization.
c.
a refinancing.
d.
none of the above
68. A cramdown procedure is used when
a.
a reorganization plan fails to meet the standard for approval by all classes under the
unanimous consent procedure.
b.
the firm is clearly insolvent and the existing equity has no value.
c.
either a or b
d.
none of the above
69. Liquidation is seen as a means
a.
of providing breathing space to viable firms that are in temporary financial distress.
b.
of winding up the operations of firms that are not economically viable.
c.
of punishing management of firms that have defrauded shareholders.
d.
all of the above
70. Which of the following is (are) legally mandated subsidies to corporations in bankruptcy?
a.
the ability to reject collective bargaining agreements
b.
the right to cease the obligation to pay interest to prebankruptcy creditors
c.
the right to terminate underfunded pension plans
d.
all of the above
71. Which party is given the responsibility of liquidating a firm if it is necessary to do so?
a.
the bankruptcy judge
b.
the creditors of the firm
c.
the bankruptcy trustee
d.
the creditors committee
72. Bank A has debt that is backed with secured assets of Company B, who is currently liquidating its
assets in bankruptcy. If Bank A is owed $10,000,000 and the liquidation of the assets will provide
$8,000,000, then what happens to the remaining $2,000,000?
a.
the $2,000,000 will be lost in the bankruptcy process
b.
the $2,000,000 will have to be repaid through the automatic securitization of other assets
c.
the $2,000,000 will become an unsecured or general credit amount in the liquidation
process.
d.
none of the above.
73. Which of the following claims is first to be paid in a Chapter 7 liquidation?
a.
secured creditors
b.
the federal government for taxes due
c.
the expenses incurred by those administering the bankruptcy process
d.
none of the above
74. Within Altman’s Z score model of predicting bankruptcy, the total value of the assets are included in
the model. If the total value of the assets decreases what effect does that have on the probability of the
firm being in bankruptcy?
a.
increases
b.
remains the same
c.
decreases
d.
it is impossible to determine since the value of the assets is only used as a parameter in the
model
75. Within Altman’s Z score model of predicting bankruptcy, working capital is included in the model. If
working capital increases what affect does that have on the probability of the firm being in
bankruptcy?
a.
increases
b.
remains the same
c.
decreases
d.
it is impossible to determine
76. Which of the following terms describes when a firm is unable to pay its liabilities as they come due
because assets cannot be converted into cash within a reasonable period of time?
a.
bankruptcy
b.
insolvency bankruptcy
c.
liquidity crisis
d.
economic failure
e.
technical insolvency
77. Which of the following terms describes when a firm’s liabilities exceed the fair market value of its
assets?
a.
bankruptcy
b.
insolvency bankruptcy
c.
liquidity crisis
d.
economic failure
e.
technical insolvency
78. The term that describes winding up a firm’s operations, selling off its assets, and distributing the
proceeds to creditors is
a.
voluntary reorganization.
b.
composition.
c.
liquidation.
d.
workout.
e.
none of the above
79. What is the term that describes an arrangement a firm can make with its creditors that enables it to
bypass many of the costs involved in legal bankruptcy proceedings if it becomes technically insolvent?
a.
voluntary reorganization
b.
composition
c.
liquidation
d.
workout
e.
none of the above
80. What is the term that describes an agreement of the creditors by which they pass the power to liquidate
the firm’s assets to an adjustment bureau, a trade association, or a third party?
a.
trustee
b.
assignment
c.
absolute priority
d.
extension
e.
composition
81. Bankruptcy filings in the United States:
a.
are mostly personal bankruptcies
b.
are mostly business bankruptcies
c.
are evenly divided between personal and business bankruptcies
d.
none of the above
82. Which of the following term describes the process in bankruptcy designed to allow businesses that are
in temporary financial distress but are worth saving to continue operating while the claims of creditors
are settled using a collective procedure?
a.
insolvency
b.
workout
c.
voluntary settlement
d.
reorganization
e.
extension
83. Which of the following terms describes the firm filing a reorganization petition?
a.
corporation
b.
debtor in possession
c.
bankrupt firm
d.
corporation under reorganization
84. What term best describes when companies prepare a reorganization plan that is negotiated and voted
on by the creditors and stockholders before the company actually files for Chapter 11 bankruptcy?
a.
workout
b.
involuntary reorganization
c.
insolvency
d.
corporation under reorganization
e.
prepackaged bankruptcy
85. Before how many days have passed must the creditors hold a meeting after a firm has been adjudged
bankrupt?
a.
180
b.
40
c.
90
d.
20
86. U.S. firms reorganizing under Chapter 11 have the right to terminate underfunded pension plans. Who
picks up the uncovered pension costs?
a.
No one, the pension plan fails.
b.
The U.S. government’s Pension Benefit Guaranty Corporation
c.
The U.S. government’s Pension Recovery Plan
d.
The stockholders of the firm being reorganized
e.
none of the above
87. The Bankruptcy Act of 2005
a.
Limits bonuses that can be paid to retain key employees
b.
Limits the length of time management is able to remain in control in Chapter 11
c.
Increased the priority of administrative claims
d.
All of the above
88. Bankruptcy filings before The Bankruptcy Act of 2005 took effect
a.
Did not change
b.
Increased
c.
Decreased
d.
Went to zero
89. What percentage of publically held firms in the U.S after experiencing financial distress default?
a.
100%
b.
57%
c.
19%
d.
24%
90. What percentage of publically held firms in the U.S after experiencing financial distress delist?
a.
100%
b.
57%
c.
19%
d.
24%
91. Which of the following was the largest bankruptcy in the United States?
a.
Enron Corp
b.
Texaco
c.
Lehman Brothers
d.
Chrysler
92. For multinational situation, applies to U.S. assets of firms that file primary bankruptcy in another
country
a.
Chapter 9
b.
Chapter 12
c.
Chapter 13
d.
Chapter 15
93. Permits consumers to repay all or a portion of their debts over time rather than go through liquidation
a.
Chapter 9
b.
Chapter 12
c.
Chapter 13
d.
Chapter 15
94. A simplified form of restructuring for farmers
a.
Chapter 9
b.
Chapter 12
c.
Chapter 13
d.
Chapter 15
95. A specialized chapter governing bankruptcies of cities and municipalities
a.
Chapter 9
b.
Chapter 12
c.
Chapter 13
d.
Chapter 15
96. Which of the following is the lowest in the priority of claims in Chapter 7?
a.
secured creditors
b.
wages
c.
Preferred shareholders
d.
Common shareholders
97. Which of the following is the highest in the priority of claims in Chapter 7?
a.
secured creditors
b.
unsecured creditors
c.
Preferred shareholders
d.
Common shareholders