Which of the Following Statements Is False

question 98

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:

Net Operating Working Capital

The difference between a company's current assets and its current liabilities, excluding short-term debt. It is indicative of a company's operational liquidity.

Balance Sheet

A report that provides an overview of a business's financial position, including what it owns (assets), owes (liabilities), and the value that remains for the shareholders (equity) at a particular moment.

Current Liabilities

Current liabilities are a company's debts or obligations that are due within one year.

Free Cash Flow

A financial metric that represents the amount of cash generated by a company after accounting for capital expenditures, essential for evaluating its liquidity, flexibility, and overall financial health.