The value of a firm in financial distress is diminished only if the firm:
A)is declared bankrupt and proceeds to be liquidated.
B)is declared insolvent and undergoes financial reorganization.
C)hires lawyers and accountants to receive and make all payments.
D)Both A and C.
E)Both A and B.

Question

Quizplus · Accepted Answer

The value of a firm in financial distress is diminished if it is declared bankrupt and proceeds to be liquidated or if it is declared insolvent and undergoes financial reorganization. Both options involve some form of restructuring or dissolution of the firm's assets, which can reduce its overall value. Hiring lawyers and accountants to receive and make all payments may be a necessary step in the process, but does not necessarily have a direct impact on the firm's value.

The Value of a Firm in Financial Distress Is Diminished