Which of the Following Is NOT True About Bankruptcy and Its

question 206

Multiple Choice

Which of the following is NOT true about bankruptcy and its costs?

• A) As the debt/equity ratio falls, the probability that a firm will be able to meet the promised payments on bonds decreases.
• B) If a firm is economically bankrupt, then an ensuing legal bankruptcy will likely result in the bondholders receiving less than what they are owed.
• C) The amount of debt a firm can raise decreases as the probability of bankruptcy increases.
• D) A firm is economically bankrupt when the value of its assets is less than the value of its debt.
• E) Direct bankruptcy costs are a disincentive to debt financing.

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Definitions:

Recollections

Memories or thoughts brought back to mind about past experiences or events.

Autobiographical Memory

The aspect of memory that pertains to recollections of personal experiences and events from one's own life.

Automatic Process

Cognitive operations that are fast, require little to no conscious effort, and often occur without our awareness, such as reading familiar words.

Automatization

The process through which tasks become automatic with practice, requiring less cognitive effort to perform over time.