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The two primary alternatives for resolving bankruptcies are liquidation (Chapter 7) and reorganization (Chapter 11). (a) What is the key assumption underlying each of these
The two primary alternatives for resolving bankruptcies are liquidation (Chapter 7) and reorganization (Chapter 11). (a) What is the key assumption underlying each of these as a resolution mechanism for default? Explain the assumption for each. (6 points) (b) Do liquidation and reorganization have the same consequences for the survivability of the form? Explain. (4 points) (c) Will the two procedures take the same or different amounts of time to complete? Explain. (5 points) d) What are direct costs of financial distress? Under which resolution procedure are direct costs of financial distress likely to be arger? Why? (5 points)
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