1) If a firm has a stock based insolvency in both book and market value terms would the shareholders push for Chapter 7 resulting in a settlement according to the APR? Why? Briefly explain your reasoning.

2) Which of the following statements is true?

a) Dividends paid to preferred shareholders are fixed in advance which is different from

bond coupons.

b) Omission of dividend payment to preferred shareholders constitute default.

c) In the case of default common shareholders have priority in their claim on firm's assets

over preferred shareholders.

d) Preferred shareholders do not have the right to vote in directors' election even when

the firm skips preferred dividend payments.

e) Dividends paid to preferred shareholders are due before the common shareholders

receive their dividends.

3) Why do firms with high level of cash flow volatility avoid issuing public debt (i.e., corporate bonds) and prefer bank loans?

4) Which theory of capital structure predicts that firms that have more tangible assets maintain a low leverage ratio?