QUESTION 1 When a company is reorganized after filing for Chapter 11 bankruptcy

Question

QUESTION 1 When a company is reorganized after filing for Chapter 11 bankruptcy it is typical for existing equity shares to be replaced with new shares that are owned by the creditors of the company. This gives the creditors ownership and control of the company when it emerges from bankruptcy. True False

QUESTION 2 Risk visualization helps managers make correct decisions about resource allocation. True False

QUESTION 3 During a corporate bankruptcy bond holders continue to receive interest on their debt but not principal. Stockholders will only receive half of their expected dividends. If and when a company emerges from bankruptcy the capital structure of the company will be the same as before the bankruptcy filing but now the pre-bankruptcy creditors will be the owners and the pre-bankruptcy owners will be the creditors. True False

QUESTION 4 Companies will choose to file for Chapter 7 bankruptcy rather than Chapter 11 when owners want to be paid before creditors. True False

QUESTION 5 When a company is files for bankruptcy and some or all of its assets are liquidated, it will be the unsecured creditors who are paid after stockholders. This is because stockholders are the owners of the company and make the decisions about asset allocation. True False

QUESTION 6 When a company files for Chapter 7 bankruptcy it must continue to operate as it did before its filing for bankruptcy but all cash generated after the filing is used to pay off bank loans. A trustee appointed by the court is responsible for managing the day to day operations of the company. Dividends are suspended. True False

Explanation / Answer

True

Bankrupt company owes to its creditors so when it is reorganised after filing for bankruptcy, its shares are given to its creditors. This gives the creditors ownership and control of the company when it emerges from bankruptcy.

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