What Are Some of the Possible Consequences of Financial Distress

question 10

Multiple Choice

What are some of the possible consequences of financial distress?
I.Bondholders, who face the prospect of getting only part of their money back, will likely want the company to take additional risks.
II.Equity investors would like the company to cut its dividend payments to conserve cash.
III.Equity investors would like the firm to shift toward riskier lines of business.

• A)I only
• B)II only
• C)III only
• D)I and II only

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Definitions:

Tangible Assets

Tangible assets are physical assets that have a finite monetary value and physical presence, such as machinery, buildings, and land.

Retained Earnings

Retained earnings are the portion of a company's profits that is kept or retained and not paid out as dividends to shareholders but reinvested in its core business or to pay debt.

Shareholders'

Individuals or entities that own one or more shares of stock in a public or private corporation, granting them certain rights such as voting on corporate matters.

Reinvested Profit

Earnings that a company plows back into itself to fund growth, debt repayment, or asset purchases rather than distributing to shareholders as dividends.