Deck 16: Financially Troubled Ventures: Turnaround Opportunities

Question 1

Asset restructuring involves improving the working capital to sales relationships and/or selling off fixed assets.

Answer 1

True

Question 2

When a venture's cash flow is insufficient to meet its current contractual debt obligations asset flow insolvency exists.

Answer 2

False

Question 3

During the development,startup,and survival stages of a venture's life cycle,the relevant financing and operating decisions faced are either restructuring or liquidating.

Answer 3

True

Question 4

Balance sheet insolvency exists when a venture has negative net debt.

Question 5

"Balance sheet insolvency" exists when a venture has negative book equity or net worth.

Question 6

"Cash flow insolvency" occurs when a venture's cash flows are insufficient to meet the venture's current contractual equity obligations.

Question 7

Chapter 7 bankruptcy filing permits for the attempt to reorganize.

Question 8

Operations restructuring always involves growing a venture's revenues relative to its costs.

Question 9

Chapter 11 bankruptcy filing requires liquidation of the venture.

Question 10

Ventures that reorganize under Chapter 11 bankruptcies may still be liquidated via Chapter 7 bankruptcies.

Question 11

"Asset restructuring" involves improving the working-capital-to-sales relationship and/or selling off fixed assets.

Question 12

A private workout is a voluntary agreement between a venture's owners and its shareholders that provides for a financial restructuring of the venture's outstanding debt.

Question 13

Foreclosure occurs when cash flows are insufficient to meet current debt obligations.

Question 14

During the rapid growth stage of a venture's life cycle,the relevant financing and operating decisions encountered are to go public,or to sell or merge the firm.

Question 15

Increasing revenues relative to current costs is the same thing as cutting costs relative to current revenues.

Question 16

The transfer of title to the venture's assets to a third-party trustee is called assignment.

Question 17

Operations restructuring involves growing revenues relative to costs and/or cutting costs relative to the ventures revenues.

Question 18

"Balance sheet insolvency" exists when a venture's total assets exceeds its total debt.

Question 19

Nearly one-fourth of all businesses dissolve within two years of beginning operations,and over one-half of new ventures dissolve within four years.

Question 20

"Cash flow insolvency" exists when a venture's cash flow is insufficient to meet its current contractual debt obligations.

Question 21

During the survival stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?

A)monitoring financial performance
B)obtaining seasoned financing
C)projecting cash needs
D)obtaining first round financing

Question 22

Debt payments extension involves postponing due dates for interest and principal payments.

Question 23

Foreclosure is the legal process used by creditors to try to collect amounts owed on loans in default

Question 24

An "acceleration provision" provides that all future interest and principal obligations on a loan become immediately due when default occurs.

Question 25

Financial distress occurs when cash flow is insufficient to meet current debt obligations

Question 26

Which of the following refers to the failure to meet loan interest or principal payments when due?

A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure

Question 27

During the development stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?

A)screening business ideas
B)preparing the business plan
C)obtaining seed financing
D)managing the ongoing operations

Question 28

During the rapid growth stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?

A)creating and building value
B)obtaining additional financing
C)choosing the organizational structure
D)examining exit opportunities

Question 29

During the maturity stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?

A)managing ongoing operations
B)maintaining and adding value
C)obtaining seasoned financing
D)obtaining seed financing

Question 30

When a venture's cash on hand is insufficient to pay currently due liabilities,this is referred to as:

A)financial distress
B)balance sheet insolvency
C)bankruptcy
D)liquidation

Question 31

A "cross default provision" provides that defaulting on one loan makes the venture liquidate all other loans.

Question 32

When one or more creditors refuse to agree to the reorganization terms of a venture in the hopes of making a larger individual recovery,it is said that a "holdout problem" has arisen.

Question 33

During the startup stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?

A)creating and building value
B)choosing organizational form
C)preparing initial financial statements
D)obtaining startup financing

Question 34

A "cross default provision" and an "acceleration provision" both cause principal obligations on a loan to become immediately due.

Question 35

Balance sheet insolvency occurs when a venture has:

A)negative net worth
B)total liabilities greater than total assets
C)negative retained earnings but positive net worth
D)a and b above
E)a,b,and c above

Question 36

"Foreclosure" is a legal process used by creditors to try to collect amounts owed on loans in default.

Question 37

An involuntary bankruptcy petition is filed by the venture's management.

Question 38

Debt composition change occurs when creditors reduce their contractual claims against the venture.

Question 39

A voluntary bankruptcy petition if filed by the venture's management.

Question 40

The common pool problem exists because individual creditors have the incentive to foreclosure on the venture even though it is worth more as a going concern.

Question 41

Which of the following refers to postponing due dates for interest and principal on loans and payments on credit purchases?

A)debt payment extensions
B)asset restructuring
C)financial restructuring
D)debt composition change

Question 42

"Financial restructuring" involves:

A)improving the working-capital-to-sales relationship
B)growing revenues relative to costs
C)changing the composition of existing debt claims against the venture
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and c above

Question 43

When a venture is in financial distress but believes it has a turnaround opportunity,which of the following won't apply?

A)operations restructuring
B)asset restructuring
C)private liquidation
D)financial restructuring

Question 44

Which of the following restricts the ability of individual creditors to foreclosure to try to recover their individual claims?

A)automatic stay provision
B)holdout problem
C)cram down procedure
D)net worth requirements

Question 45

Which of the following provides that defaulting on one loan places all loans in default?

A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure

Question 46

Asset restructuring involves which of the following:

A)improving the working capital to sales relationship
B)selling off fixed assets
C)growing revenues
D)cutting costs relative to revenues
E)a and b above
F)c and d above

Question 47

Which of the following refers to when creditors reduce their contractual claims against the venture?

A)debt payment extensions
B)asset restructuring
C)financial restructuring
D)debt composition change

Question 48

When a venture files for legal bankruptcy through Chapter 11 and attempts to reorganize,which is not likely to be a possible outcome?

A)Chapter 7 liquidation
B)merge the venue
C)restructuring of assets
D)reorganize and continue to operate

Question 49

The legal process that facilitates a creditor's ability to collect on loans in default is known as:

A)the acceleration provision
B)the holdout provision
C)foreclosure
D)a private workout

Question 50

Operations restructuring involves which of the following:

A)growing revenues relative to costs
B)cutting costs relative to revenues
C)reducing net working capital
D)reducing the cash conversion cycle
E)a and b above
F)c and d above

Question 51

Your firm has inventory of $188,000,cost of goods sold of $522,000,and accounts receivable of $214,000.What is your inventory conversion period?

A)131 days
B)152 days
C)168 days
D)98 days
E)76 days

Question 52

Which of the following refers to the legal process used by creditors to try to collect amounts owed on loans in default?

A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure

Question 53

"Operations restructuring" involves:

A)improving the working-capital-to-sales relationship
B)postponing due dates for interest and principal payments
C)selling off fixed assets
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and d above

Question 54

When individual creditors have an incentive to foreclose on a venture,even though it is worth more as a going concern,it is said that there is a:

A)common pool problem
B)holdout problem
C)solvency problem
D)cram-down problem

Question 55

Your firm had net sales of $80,000 this past year and receivables of $20,000; and a cost of goods sold of $522,000.What were the days sales outstanding?

A)91 days
B)48 days
C)36 days
D)5 days
E)4 days

Question 56

"Asset restructuring" involves:

A)improving the working-capital-to-sales relationship
B)growing revenues relative to costs
C)changing the contractual terms of existing debt obligations
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and d above

Question 57

Which of the following refers to changing the contractual terms of the existing debt obligations?

A)debt payment extensions
B)asset restructuring
C)financial restructuring
D)debt composition change

Question 58

Which of the following provides that all future interest and principal obligations on a loan become immediately due when default occurs?

A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure

Question 59

When a venture has a negative equity or net worth position and/or when its cash flow is insufficient to meet current debt obligations refers to which of the following?

A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure

Question 60

Your firm has an average collection period of 36.5 days.Sales revenues are $30,000.What is your firm's average investment in accounts receivables?

A)$3,650
B)$3,000
C)$1,000
D)$822
E)$444

Question 61

A venture may file for legal bankruptcy in order to liquidate the venture under which one of the following chapters?

A)Chapter 1
B)Chapter 5
C)Chapter 7
D)Chapter 11

Question 62

The rule governing hierarchical order in which claim payments must be made during a bankruptcy is known as the:

A)cram-down procedure
B)absolute priority rule
C)prepackaged bankruptcy rule
D)involuntary bankruptcy rule

Question 63

The ways,individually or in combination,for resolving financial distress are:

A)operations restructuring
B)financial restructuring
C)asset restructuring
D)all of the above
E)none of the above

Question 64

A venture may file for legal bankruptcy in order to attempt to reorganize under which one of the following chapters?

A)Chapter 1
B)Chapter 5
C)Chapter 7
D)Chapter 11
E)Chapter 13

Question 65

The Federal Bankruptcy Reform Act was implemented between:

A)1776-1778
B)1830-1833
C)1978-1979
D)2006-2007

Question 66

Which of the following is not a typical outcome of a Chapter 11 bankruptcy?

A)successful reorganization and the continuation of operations
B)liquidation under Chapter 7 bankruptcy legislation
C)a government bailout resulting in continued operations at the expense
Of operational independence from the government
D)merging the venture with another firm
E)a and b
F)c and d

Question 67

Which of the following refers to when a bankruptcy court accepts a reorganization plan for all creditors including dissenting creditor classes?

A)automatic stay provision
B)holdout problem
C)cram down procedure
D)net worth requirements