According to signaling theory, Chapter 11 is a useful mechanism for screening inefficient firms out of debt renegotiation. Inefficient firms voluntarily choose Chapter 11 because: a. the firm can be liquidated more quickly. b. negotiations therein generally result in some value retained by shareholders. c. creditors are protected from violations of the absolute priority rule […]
Which of the following is an example of carrying cost? A) insurance of goods in transit B) transportation cost C) insurance cost D) cost of inventory ANSWER C
Investors who specialize in the debt or equity of distressed firms are called: a. speculators. b. arbitrageurs. c. bottom dwellers. d. vulture investors. ANSWER D
TRUE or FALSE: For distressed firms with both bank and public debt outstanding, banks never make concessions unless public debtholders also restructure their claims. a. TRUE b. FALSE ANSWER A
The ________ uses no, or very little, safety stock. A) basic economic order quantity system B) materials requirement planning system C) just-in-time system D) FIFO method ANSWER C
In the EOQ model, ________ costs are the variable costs per unit of holding an item of inventory for a specified time period. A) marginal B) order C) carrying D) processing ANSWER C
TRUE or FALSE: According to empirical studies, the combination of secured private debt and numerous public debt issues (in a distressed firm’s capital structure) impedes out-of-court debt restructuring and increases the probability of a Chapter 11 filing. a. TRUE b. FALSE ANSWER A
To preserve the value of a distressed firm, it is generally important for the firm to continue operating throughout Chapter 11 proceedings. Generally, the firm’s current management is allowed to run the firm during the proceedings under a restrictive arrangement called a. the value-preservation dictum. b. debtor-in-possession. c. managerial discretion. d. trustee assignment. […]
In the EOQ model, if the size of order increases, the ________. A) carrying cost will increase B) order cost will remain unchanged C) order cost will increase D) storage cost will decrease ANSWER A
The ________ is an inventory management technique that compares production needs to available inventory balances and determines when orders should be placed for various material inputs. A) ABC system B) EOQ model C) MRP system D) JIT system ANSWER C
