Chp13

According to M&M Proposition I with taxes, the value of a levered firm will increase when the

- value of the unlevered firm increases.

Which one of the following will generally receive the highest priority in a bankruptcy liquidation, assuming the absolute priority rule is followed?

Bankruptcy administrative expenses

Which one of the following is a key provision of the Bankruptcy Abuse Prevention and Consumer Protection

Right granted to creditors to file their own reorganization plan once a firm is in bankruptcy for 18 months

Which one of the following statements is correct regarding bankruptcies post-2005?

Section 363 speeds up the bankruptcy process via a bidding process

Assume you are comparing two firms that are identical in every aspect, except one is levered and one is unlevered. Which one of the following statements is correct regarding these two firms?

The unlevered firm will have higher EPS at relatively low levels of EBIT.

levrage

Use of debt in a capital structure

Which one of the following best defines legal bankruptcy?

a legal proceeding for liquidating or reorganizing a business

Capital Restructuring

changing the amount of leverage without changing the firm's assets

The level of financial risk to which a firm is exposed is dependent on the firm's:

debt to equity ratio

Which one of the following terms is inclusive of both direct and indirect bankruptcy costs?

financial distress costs

Paying interest reduces the taxes owed by a firm. Which one of the following terms applies to this relationship?

interest tax shield

Which one of the following terms refers to the termination of a firm as a going concern?

liquidation

Greenwood Motels has filed a petition for bankruptcy but hopes to continue its operations both during and after the bankruptcy process. Which one of the following terms best applies to this situation?

reorganization

Which one of the following is the theory that a firm should borrow up to the point where the additional tax benefit from an extra dollar of debt equals the additional costs associated with financial distress from that additional debt?

the static theory of capital structure.