The value of a firm in financial distress is diminished if the firm:
A)is declared bankrupt and proceeds to be liquidated.
B)is declared insolvent and undergoes financial reorganization.
C)is a partnership.
D)Both A and C.
E)Both A and B.

Question

Quizplus · Accepted Answer

A firm in financial distress may be able to undergo financial reorganization to improve its financial situation, but if it is declared bankrupt and proceeds to be liquidated, the value of the firm will be diminished. The fact that the firm is a partnership is not relevant to the value of the firm in financial distress. Therefore, both options A and B are correct.

The Value of a Firm in Financial Distress Is Diminished