What Are Some of the Possible Consequences of Financial Distress

question 20

Multiple Choice

What are some of the possible consequences of financial distress?

• A)Bondholders, who face the prospect of getting only part of their money back, will likely want the company to take additional risks.
• B)Equity investors would like the company to cut its dividend payments to conserve cash.
• C)Equity investors would like the firm to shift toward riskier lines of business.
• D)Bondholders, who face the prospect of getting only part of their money back, will likely want the company to take additional risks; and equity investors would like the company to cut its dividend payments to conserve cash.

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Definitions:

Combustion Reactions

Chemical reactions that involve the burning of a substance in the presence of oxygen, often producing heat and light.

Ideal Conditions

Conditions that are considered perfect for a specific process or reaction, often theoretical and not attainable in practical situations.

Combustion Reaction

A chemical process in which a substance combines with oxygen, releasing heat and often light; commonly associated with fire.

Oxidation Number

A concept in chemistry that reflects the degree of oxidation of an atom in a chemical compound.