When Large Firms File for Bankruptcy

question 71

Multiple Choice

When large firms file for bankruptcy:

• A) the proceedings involve costly delays and legal tangles, and the business continues to deteriorate.
• B) their purpose is usually to nurse the firm back to health and enable it to face the world again.
• C) their benefit is that their creditors will be forced by law to give up their claims on the firm.
• D) their creditors often try to seize the assets as soon as possible.

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Definitions:

Interest Expense

A financial charge for borrowing money or the cost incurred on debt.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.

Financial Leverage

A difference between the rate of return on assets and the rate paid to creditors.

Common Stock

A type of security that represents ownership in a corporation, granting holders voting rights and a share in the company's profitability through dividends and/or capital appreciation.