Consider the Following Two Statements: (I) the Absolute Priority Rule

question 8

Multiple Choice

Consider the following two statements: (i) The absolute priority rule states that senior equity holders are paid in full before other claimants.
(ii) To rule out liquidation, management of a firm can favor a corporate bankruptcy.

• A)(i) is correct and (ii) is incorrect.
• B)(ii) is correct and (i) is incorrect.
• C)Both (i) and (ii) are correct.
• D)Both (i) and (ii) are incorrect.
• E)Bankrupt firms cannot continue to do business.

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