Question 20

The present value of taxes paid by _____ is higher than that paid by _____ companies.

a. successful companies; unsuccessful

b. companies with stable earnings; volatile

c. small companies; big

d. companies with volatile earnings; stable

Question 21

In situations involving safety and health, the trade-off between expected profits and expected losses is _____ for making sound decisions.

a. irrelevant

b. not sufficient

c. always sufficient

d. usually sufficient

Question 22

Company A prefers to have a fixed-rate debt. Company B prefers to have a floating-rate debt. The two companies decide to arrange an interest rate swap. Prior to the swap, _____.

a. Company A should raise floating-rate debt while Company B raises fixed-rate debt

b. both companies should raise fixed-rate debt

c. both companies should raise floating-rate debt

d. both companies should raise the same type of debt, either floating-rate or fixed-rate

Question 23

A company that loses money when commodity prices are low and makes money when commodity prices are high faces _____ risk.

a. impure

b. operational

c. nonlinear

d. linear

Question 24

In a Monte Carlo simulation, which of the following is an accurate comparison between VaR and ETL?

a. VaR and ETL are the same measure.

b. VaR indicates the size of the loss at the threshold percentile, whereas ETL indicates the size of the loss below the threshold percentile.

c. VaR and ETL both indicate the size of the loss below the threshold percentile, but neither indicates the size of the loss at the threshold percentile.

d. VaR and ETL both indicate the size of the loss at the threshold percentile, but neither indicates the size of the loss below the threshold percentile.

Question 25

Case studies show that financial difficulties are usually attributable to _____.

a. technological forces beyond the firm's control

b. lower-level employees

c. globalization forces beyond the firm's control

d. management

Question 26

Which of the following is true of reorganizations and liquidations?

a. Informal liquidations and reorganizations are both preferable to formal bankruptcy.

b. Informal agreements are better for liquidations, while formal bankruptcy is better for reorganizations.

c. Informal agreements are better for reorganizations, while formal bankruptcy is better for liquidations.

d. Informal liquidations and reorganizations are both less preferable than formal bankruptcy.

Question 27

Critics who argue that the entire bankruptcy system needs to be scrapped and replaced by an auction believe that _____ better than the courts at judging whether a company is more valuable dead or alive.

a. shareholders are

b. managers are

c. lawyers are

d. creditors are

Question 28

Asking whether a financially distressed firm is "worth more dead than alive" is another way of asking _____.

a. whether the firm's basic long-run asset values have truly declined

b. who should control the firm while it is being liquidated or rehabilitated

c. whether the firm should file for protection under Chapter 11 of the Bankruptcy Act or use informal procedures

d. whether the business be more valuable if it were liquidated and sold off in pieces or maintained and continued in operation