Which of the Following Statements Is FALSE

question 8

Multiple Choice

Which of the following statements is FALSE?

• A)The direct costs of bankruptcy are likely to be higher for firms with more complicated business operations and for firms with larger numbers of creditors,because it may be more difficult to reach agreement among many creditors regarding the final disposition of the firm's assets.
• B)In a prepackaged bankruptcy (or "prepack")a firm will first develop a reorganization plan with the agreement of its main creditors,and then file Chapter 7 to implement the plan and pressure any creditors who attempt to hold out for better terms.
• C)A study of Chapter 7 liquidations of small businesses found that the average direct costs of bankruptcy were 12% of the value of the firm's assets.
• D)Studies typically report that the average direct costs of bankruptcy are approximately 3% to 4% of the pre-bankruptcy market value of total assets.

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Definitions:

Variable Cost

Expenses that vary directly with production output.

Mud Statues

Sculptures made from mud or clay, often created as artistic or cultural items.

Loan

A borrowed amount of funds that needs to be returned along with additional interest charges.

Total Cost

The aggregate expenditure on production, covering both unchanging and variable costs.