BA323 Exam 4 Questions and Correct Answers.
what is "business failure?"
used to refer to a situation in which a business has terminated with a loss to creditors, but even an
all-equity firm can fail
what is "legal bankruptcy?"
firms or creditors bring petitions to a federal court for bankruptcy.
what is "technical insolvency?"
occurs when a firm is unable to meet financial obligations
what is "accounting insolvency?"
firms with negative net worth are "insolvent" on the books. this happens when the total
book liabilities exceed the book value of total assets.
why do stockholders have the highest required return?
they are the last to receive anything if the company goes under
what methods have been developed to minimize bankruptcy costs?
1. prepacks
2. cramdowns
3. section 363
4. workouts
what are prepacks?
"prepackaged" filings or templates
,what are cram-downs?
court-ordered plan acceptances in cases of bankruptcy
what are section 363's?
auction-like bankrupcy plans
what are "workouts?"
negotiated extensions or payments in case of bankruptcy
what are the benefits of declaring bankruptcy?
-immediate "stay" on creditors
-ability to terminate labor agreements (ex:
unions) -ability to lay off large numbers of
workers -ability to reduce wages
what is a dividend?
payment made out of a firm's earnings to it's owners, either in the form of cash or a stock
what is a distribution?
a payment made by a firm to its owners from sources other than accumulated retained earnings
what are the types of cash dividends?
1. regular cash dividends
2. "extra" dividends
3. special dividends
4. liquidating dividends
what are liquidating dividends?
dividends that occur during a firm's partial or complete liquidation
true/false: dividends can occur other nontraditional forms, such as mcdonalds burgers.
true. mcdonald's japan gave shareholders coupons for free hamburgers.
, what is the timeline of issuing a dividend payment?
1. declaration date
2. ex dividend date
3. date of record
4. date of payment
what is the declaration date?
the date in which the board of diretors passes a resolution to pay a dividend
when does the dividend become a liability of the firm?
on the declaration date
what is the ex dividend date?
the same day or one business day before the date of record. if you purchase a stock on its ex-
dividend date or after, you will not receive the dividend payment. if you purchase before the
ex-dividend date, you receive the payment.
what is the date of record?
the date by which holders must be on record to receive a dividend. on this day, the
corporation prepares a list of all individuals believed to be stockholders (holders of record).
what is a firm's dividend policy?
the time pattern of their dividend payout.
**NOT the amount of the dividends themselves
true/false: dividend amounts matter, dividend policy does not
true
why would someone desire a high dividend payout?
1. desire for current income (clientele effect)
2. tax and legal benefits
what is a stock repurchase?
what is "business failure?"
used to refer to a situation in which a business has terminated with a loss to creditors, but even an
all-equity firm can fail
what is "legal bankruptcy?"
firms or creditors bring petitions to a federal court for bankruptcy.
what is "technical insolvency?"
occurs when a firm is unable to meet financial obligations
what is "accounting insolvency?"
firms with negative net worth are "insolvent" on the books. this happens when the total
book liabilities exceed the book value of total assets.
why do stockholders have the highest required return?
they are the last to receive anything if the company goes under
what methods have been developed to minimize bankruptcy costs?
1. prepacks
2. cramdowns
3. section 363
4. workouts
what are prepacks?
"prepackaged" filings or templates
,what are cram-downs?
court-ordered plan acceptances in cases of bankruptcy
what are section 363's?
auction-like bankrupcy plans
what are "workouts?"
negotiated extensions or payments in case of bankruptcy
what are the benefits of declaring bankruptcy?
-immediate "stay" on creditors
-ability to terminate labor agreements (ex:
unions) -ability to lay off large numbers of
workers -ability to reduce wages
what is a dividend?
payment made out of a firm's earnings to it's owners, either in the form of cash or a stock
what is a distribution?
a payment made by a firm to its owners from sources other than accumulated retained earnings
what are the types of cash dividends?
1. regular cash dividends
2. "extra" dividends
3. special dividends
4. liquidating dividends
what are liquidating dividends?
dividends that occur during a firm's partial or complete liquidation
true/false: dividends can occur other nontraditional forms, such as mcdonalds burgers.
true. mcdonald's japan gave shareholders coupons for free hamburgers.
, what is the timeline of issuing a dividend payment?
1. declaration date
2. ex dividend date
3. date of record
4. date of payment
what is the declaration date?
the date in which the board of diretors passes a resolution to pay a dividend
when does the dividend become a liability of the firm?
on the declaration date
what is the ex dividend date?
the same day or one business day before the date of record. if you purchase a stock on its ex-
dividend date or after, you will not receive the dividend payment. if you purchase before the
ex-dividend date, you receive the payment.
what is the date of record?
the date by which holders must be on record to receive a dividend. on this day, the
corporation prepares a list of all individuals believed to be stockholders (holders of record).
what is a firm's dividend policy?
the time pattern of their dividend payout.
**NOT the amount of the dividends themselves
true/false: dividend amounts matter, dividend policy does not
true
why would someone desire a high dividend payout?
1. desire for current income (clientele effect)
2. tax and legal benefits
what is a stock repurchase?
