Purchase Solution

Is negative equity possible? Will you go bankrupt?

Not what you're looking for?

Ask Custom Question

A mutual business partner and I were discussing the the bailout situation with GM when she stated that it is impossible for a company to have a negative book value of equity without ending up in bankruptcy. Is this true?

Purchase this Solution
Solution Summary

Inquiring minds want to know - and this sets the record straight. Financial statements for a real firm are presented as evidence are provided.

Solution Preview

Good news for you; bad news for your partner.

Here is the 2008 Boeing Balance Sheet (pdf was too large to upload) and the 2009 Balance Sheet showing that the negative equity was not the downfall of the firm. No bankruptcy here. Here ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

View More Free Quizzes
Related BrainMass Solutions

  • Altman Z Score for General Motors

    Based on the Z- Score: Do you predict that GM will go bankrupt in the near-term? Explain Based on your calculations, would you agree or disagree with Lutz that GM is over the worst? Explain in detail.

  • Sarbanes-Oxley Act

    Discuss the negative consequences that arise when auditors fail to predict companies that go bankrupt. Who is harmed by these failures? Discuss the negative consequences that arise when auditors incorrectly predict bankruptcy.

  • to which financial ratios would you pay most attention

    While this shows the company is not in good financial health, it does not necessarily mean it will go bankrupt as there are many ways to access financing but it is not a sign of financial health.

  • gross federal debt

    Many people are concerned that the government could go bankrupt and that the U.S. economy could face severe consequences. Under what conditions can a government go bankrupt? Is it possible for the U.S. government to go bankrupt? 2.

  • WACC, market value balance sheet, cost of Financial distress, trade-off theory

    The firm has a 30 percent chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankruptcy costs of $200,000. The discount rate is 10 percent. Should the firm issue the debt?

  • Quantifiable Statistics

    On the other hand, if the company does that and the drug has a negative impact on a consumer, then nobody is every going to buy any drugs from that company. Thus the company will eventually go bankrupt.

  • Capital Structure and Cost of Equity

    The cost of equity is a cost from the firm's perspective, a higher cost of equity means it means the shareholders will require a higher return to cover the higher risk of the firm going into default.

  • binomial probability formula

    exactly 9 go bankrupt b. No more than 3 go bankrupt The probability that a business owner will go bankrupt in it first year is .34.

  • Stocks and bonds

    Bond financing represents financial risk since if the bonds are not serviced, the company could go bankrupt, which is not the case with stock financing 7.

  • raising capital for a small business

    This is a good choice because some of the money will not have to be paid back. Receiving a grant for a business is the best possible scenario.

View More Related Solutions