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Financial Distress and Bankruptcy

Bankruptcies in Slobovia

Can you help me understand this problem?? In Slobovia, an obscure European country, dividends and interest are given the same tax treatment: they are both deductible at the corporate level and both taxed as income at the investor's level. All else the same, where else would you expect more corporate bankruptcies, in Slobo

Corporate Finance Relevance

FIND AN ARTICLE OF RELEVANCE TO CONTEMPORARY "CORPORATE FINANCIAL" ISSUES FROM VARIOUS BUSINESS PUBLICATIONS (DAILY NEWSPAPERS, WEEKLY OR MONTHLY BUSINESS MAGAZINES, FINANCIAL WEB SITES, ETC) AND FINANCE ACADEMIC JOURNALS. AFTER READING THE ARTICLE YOU CHOOSE, YOU NEED TO BRIEFLY SUMMARIZE THE ARTICLE AND DEVELOP YOUR OPINION(S)

Foreclosure Crisis: Bankruptcy Courts

In light of the foreclosure crisis, do you think that bankruptcy courts should put more pressures on the lenders to work with homeowners who are behind in payments?

Changes in Bankruptcy Laws

Just so you can have an idea of what our discussion debate was about: In October of 2005, our bankruptcy laws were substantially changed. In particular, the new law makes it harder to file for Chapter 7 and changes the Homestead Exemption. In my case I was assigned to argue against this law such as 'What did it change; why w

Paul operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: $1,500 for travel, $2,000 for legal advice, and $3,500 for market analysis. Based on the different tax consequences listed below, describe the circumstances that were involved in Paulâ??s investigation of the business. Paul deducts the $7,000 of expenses incurred. Paul cannot deduct any of the $7,000 of expenses incurred. Paul deducts $5,000 of the expenses incurred and amortizes the $2,000 balance over a period of 180 months. 2. Contrast the differing results obtained by using the IRS's approach and the court's approach to allocating property taxes and mortgage interest in a personal/rental situation. Which method would the taxpayer prefer and why. 3. John was the sole shareholder of Blonde, Inc. The corporation had 26 salaried employees, which included John. Several years ago Blonde began experiencing financial difficulties. As a result, john made several loans to the corporation in an attempt to continue business operations and pay employee salaries. The corporation eventually filed for bankruptcy under Chapter 7 of the bankruptcy code. Upon the final discharge of the corporation's debts, John's loans remain unpaid and were worthless. Identify the relevant tax issues for John with respect to his loans to Blonde, Inc. 4. Discuss the application of the nonbusiness bad debt provisions to an individual taxpayer.

1. Paul operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: $1,500 for travel, $2,000 for legal advice, and $3,500 for market analysis. Based on the different tax consequences listed below, describe the circumstances that were involved in Paulâ??s invest

Market value & present value of tax shield

Given the following information, calculate the market value of E Corporation, D Corporation, and the present value of the tax shield to D Corporation if both companies have a tax rate of 40%. Assume there are no agency costs or financial distress and that the expected growth of EBIT is zero. E Corporation: cost of equi

Because of a massive natural disaster, Jones Company

Because of a massive natural disaster, Jones Company, one of our company's largest clients, suddenly and unexpectedly became bankrupt. The amount due to us from Jones Company is no longer collectible and represents 30% of our total A/R, an amount that is considerably greater then we estimated we would write off during this accou

Financing for Small Dot-Com Companies

Many of the small "dot-com" companies got financing in the form of an instrument called convertible debt. This is like ordinary debt, in that it pays a regular interest amount. But debt-holders have the right to convert it to equity. Why do you think these companies chose this instrument? Do you think it was a good idea? Reme

Crenshaw Properties Bankruptcy

Discuss the steps that Ralph Smalley could have taken to prevent the bankruptcy of Crenshaw Properties. Do you believe these steps would have been reasonable and logical to take at that time. why or why not? --------------------- Story line: Crenshaw Properties was a real estate developer that specialized in self-st

Info System Technology (IST) manufactures microprocessor chips for use in appliances and other applications. IST has no debt and 100 million shares outstanding. The correct price for these shares is either $14.50 or $12.50 per share. Investors view both possibilities as equally likely, so the shares currently trade for $13.50. IST must raise $500 million to build a new production facility. Because the firm would suffer a large loss of both consumers and engineering talent in the event of financial distress, managers believe that if IST borrows $500 million dollars, the present value of financial distress costs will exceed any tax benefits by $20 million. At the same time, because investors believe that managers know the correct share price, IST faces a lemons problem if it attempts to raise $500 million dollars by issuing equity. a) Suppose that if IST issues equity, the share price will remain $13.50. To maximize the long-term share price of the firm once its true value is known, would managers choose to issue equity or borrow the $500 million if: 1) They know the correct value of the shares is $12.50? 2) They know the correct value of the shares is $14.50? b) Given answer to part (a), what should investors conclude IST issues equity? What will happen to the share price? c) Given your answer to part (a), what should investors conclude if IST issues debt? What will happen to the share price in this case? d) How would yours answers change if there were no distress costs, but only tax benefits of leverage?

Having trouble with these questions. Can you help me? Please show equations/calculations. -------------------------- Info System Technology (IST) manufactures microprocessor chips for use in appliances and other applications. IST has no debt and 100 million shares outstanding. The correct price for these shares is either $14

Capital Structure Decision Types

1.Discuss types and sources of corporate debt and bond covenants. 2.Discuss the pros and cons of debt financing. Provide examples. 3.Discuss factors that influence the firm's choice of capital structure. Describe how taxes affect the choice of debt versus equity. 4.Explain what is meant by "indirect costs of financial dist

Estimate of petitions that contain fraud

Visit the IRS's bankruptcy site at http://www.irs.gov/compliance/enforcement/article/0, id=117520,00.html and answer the following questions: a. What percentage of bankruptcy petitions does the IRS estimate contain some kind of fraud? b. What are the major goals of the Criminal Investigation Division's bankruptcy fraud pr

Reasons People File Bankruptcy

- Who may file Chapter 7 bankruptcy? - What are some of the reasons that people file bankruptcy? - How does bankruptcy affect interest rates on loans? Credit cards?

Costs and factors of bankruptcy

A) What are bankruptcy costs and what costs does it not take into consideration? B) A company can suffer from increased expenses if it experiences financial difficulties even though it does not go bankrupt. Why? Please fully elaborate on definitions and explanations.

About Shareholders and Debtors

The balance sheet of Company X is as follows: In millions of USD: Assets Working capital 20 Investments 10 Total 30 Liabilities 1-year loan 25 Equity 5 Total 30 Which party (shareholders or debtors) wins if Company X: a.) Distributes $10 million in dividends. b.) Shuts down and sells its possessions. From worki

Bankruptcy and corporate ethics

Continental Airlines once filed for bankruptcy, at least in part, as a means of reducing labor costs. Whether this move was ethical or proper was hotly debated. Give both sides of the argument.

Chapter 7 Bankruptcy Liquidation Problem

Williams Manufacturing Company is in Chapter 7 of bankruptcy, and it is to be liquidated. Sale of its fixed assets which are pledged as collateral to the mortgage bondholders produced $300,000, while its current assets produced $150,000. Trustee's costs (which are not recorded on the company's balance sheet) were $40,000. No sin

Professional Ethics in Budgeting

Project Paper Topic: Professional Ethics in Budgeting Subtopic: Ethics has recently become a hot topic in the business world. Ethical dilemmas arise on regular basis. Use external resources to find an example of ethical dilemmas or challenges regarding budgeting. Feel free to expand or focus on a particular issue deal

Review the General Motors bankruptcy that occurred during 2009. What type of bankruptcy was it (what Chapter) and what kinds of decisions went into the bankruptcy declaration?

Review the General Motors bankruptcy that occurred during 2009. What type of bankruptcy was it (what Chapter) and what kinds of decisions went into the bankruptcy declaration? How did the creditors of GM and workers and related businesses at GM fare in the bankruptcy process? What do you think were the positives and negatives of

Employees Rights and Employer Responsibilites

Read the following scenario about Mary. Based upon the information in the text and your own online research, discuss Mary's ethical options. What do you think that she should do? Mary recently graduated from college and landed her first corporate job. She works as an administrative assistant for an international corporation t

Individual: Bankruptcy Problem

See the attached file(s). Individual: Bankruptcy a) Problem 30.3 (p. 56): Propose a distribution of assets consistent with the absolute priority rule. b) Problem 30.4 (p. 56): Propose a distribution of assets consistent with the absolute priority rule. c) Delphi Corporation Assignment i) Delphi, an automobile suppl