Given Realistic Estimates of the Probability and Cost of Bankruptcy

question 19

Multiple Choice

Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:

• A)all investors in the firm.
• B)debtholders only because if default occurs interest and principal payments are not made.
• C)shareholders because debtholders will pay less for the debt providing less cash for the shareholders.
• D)management because if the firm defaults they will lose their jobs.
• E)None of the above.

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Definitions:

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clearly stated or decided; not vague or doubtful.

Requisite Manner

The required or specified way something must be done, often detailed in a legal context or formal procedure.

Restatement (Second)

A series of legal treatises that summarize the common law in several areas, serving as authoritative guides but not binding law.

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