Some Research Has Shown That Being in Financial Distress May

question 20

Multiple Choice

Some research has shown that being in financial distress may not be all bad news for an entity because:

• A) Investors will see this as an opportunity to buy into a company that can really only improve.
• B) Existing managers will want to be released from their contracts allowing new ideas to be employed.
• C) There will be no requirement to consider the social costs of retrenching employees because the accounting numbers show it is necessary.
• D) It will provide the stimulus to rethink activities that may in turn lead to improved future performance.
• E) All of the given answers.

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Definitions:

Accounting Profits

The net income of a company as calculated by subtracting total expenses from total revenues, in accordance with accounting principles.

Negative

A term used to describe values or balances that are less than zero, often used in financial contexts.

Accounting Profit

The difference between total revenue and total expenses when both are measured in accordance with generally accepted accounting principles.

Savings Account

A deposit account held at a financial institution that provides principal security and a modest interest rate.