The Wiz Co

question 39

Multiple Choice

The Wiz Co.owes $60 to its bondholders for the payment of principal and interest.The company expects to have a cash flow of $136 if the economy continues as it is but that cash flow will decrease to $54 if the economy enters a recession.Should the company ever face the real possibility of bankruptcy,it will incur legal and other fees of $30.What amount will the bondholders be paid in the case of a recession?

• A)$30
• B)$60
• C)$54
• D)$24
• E)$0

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Definitions:

Economic Loss

A situation where total costs exceed total revenues, indicating that a firm is not covering its opportunity costs.

Accounting Profit

The calculated income of a business or company after subtracting all explicit costs from total revenues.

Average Variable Cost

Calculated by dividing the total variable costs by the quantity of output produced, representing the variable cost per unit of output.

MR = MC

The condition where marginal revenue equals marginal cost, often used to determine the profit-maximizing output level for a firm.