Firms deal with financial distress by:

Question

Quizplus · Accepted Answer

Firms may use different methods to deal with financial distress, and a combination of strategies may be required. Selling major assets may provide an injection of cash to cover immediate obligations, but it may also reduce the firm's long-term ability to generate revenue. Merging with another firm can bring cost savings, economies of scale, and access to new markets, but it may also be challenging to integrate two different cultures and business models. Issuing new securities can help to raise capital, but it may also be difficult to find investors willing to take on risk in a distressed firm. Lastly, exchanging debt for equity can reduce the firm's debt burden and provide a fresh start, but it may also dilute existing shareholders' ownership and control. Therefore, the best choice is E, as all of these strategies can be useful depending on the firm's specific situation.

Firms Deal with Financial Distress By