Corporate Finance 公司理财 机械工业出版社 Ross Ch030第30章答案.docVIP

《Corporate Finance》公司理财 Stephen A.Ross 机械工业出版社 Chapter 30: Financial Distress 30.1 Financial distress is often linked to insolvency. Stock-based insolvency occurs when a firm has a negative net worth. Flow-based insolvency occurs when operating cash flow is insufficient to meet current obligations. 30.2 Financial distress frequently can serve as firm’s “early warning” sign for trouble. Thus, it can be beneficial since it may bring about new organizational forms and new operating strategies. 30.3 Under the absolute priority rule (APR), claims are paid out in full to the extent there are assets. In this case, assets are $5,000, so you should propose the follows. Original Claims Distribution of liquidating value Trade credit 1,000 1,000 Secured notes 1,000 1,000 Senior debenture 3,000 3,000 Junior debenture 1,000 0 Equity 0 0 Total 6,000 5,000 30.4 There are many possible reorganization plans. One that might work here is Assets Original Reorganized Claims Claims Going concern value 15,000 Mortgage bonds 10,000 Senior debenture 10,000 Senior debenture 6,000 Junior debenture 4,000 Junior debenture 4,000 Equity 1,000 Equity -5,000 The holders of mortgage bonds would receive senior debentures in original amounts. The holders of senior debentures would receive junior debentures at 66.67 cents on the dollar. The holders of the junior debentures would receive equity at 25 cents on the dollar. 30.5 a. APR: Absolute priority rule is the priority rule of the distribution of the proceeds of the liquidation. It begins with the first claim to the last, in the order : administrative expenses, unsecured claims after a filing of involuntary bankruptcy petition, wages, employee benefit plan, consumer claims, taxes, secured and unsecured loans, preferred stocks and common stocks. b. DIP: Debtor in possession. Bankruptcy allows firms to issue new debt that is senior to all previously incurred debt. This new debt is called DIP debt. 3