2. Which of the following statements is FALSE?Video: 5.F. P54-72 (Capital structure with other market imperfections 1)Group of answer choicesD) Bankruptcy is rarely simple and straightforward—equity holders don’t just "hand the keys" to debt holders the moment the firm defaults on a debt payment.B) With perfect capital markets, the risk of bankruptcy is not a disadvantage of debt—bankruptcy simply shifts the ownership of the firm from equity holders to debt holders without changing the total value available to all investors.A) When a firm fails to make a required payment to debt holders, it is in bankruptcy.C) Bankruptcy can be a long and complicated process that imposes both direct and indirect costs on the firm and its investors that the assumption of perfect capital markets ignores. PreviousNext

Select all that applyWhat are the differences in the claims of shareholders and bondholders during bankruptcy?Multiple select question.Bondholders have a fixed claim while shareholders have a variable claim on all the residuals.Bondholders and shareholders share proportionately.Bondholders claims are settled first.Shareholders claims are settled first.

How do bankruptcy costs impact the distribution of firm value between shareholders and bondholders?Multiple choice question.There is less left for shareholders and bondholders.There is no effect on bondholders and shareholders.There is no effect on bondholders but less is available for shareholders.There is more left for shareholders and bondholders.

Which of the following is likely to be true when a bankruptcy ruling is issued?Multiple choice question.The ownership of assets is transferred from the shareholders to the bondholders.The ownership of assets is transferred from the bondholders to the shareholders.There is no change in the ownership of assets.The ownership of assets is transferred from the shareholders to the federal government.

If a firm fails to meet its responsibilities to _____, it may be forced into bankruptcy. A. its employees B. the environment C. the government D. its creditors E. its owners

What is the main drawback of not issuing debt so as to avoid bankruptcy costs?Multiple choice question.The firm has to pay higher dividends to the shareholders.The firm has to pay lower dividends to the shareholders.The firm loses the valuable tax shield benefits of debt.The shareholders cannot consult with the bondholders when faced with bankruptcy.