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foreign

   
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Title: foreign
 
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Subject: Business
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Date: December 30, 1999
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Length: 3 / 717
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bankruptcy code? Chapter 7 bankruptcy- Absolute priority? Chapter 11 bankruptcy- Debtholders and equityholders get new claims instead of the old ones- Reorganization plan -------------------------------------------------------------------------------- Page 9 9Costs of bankruptcy? Direct costs- Management time- Legal expenses and advisors' fees- Court costs? Indirect costs- Conflicts of interests between equityholders and debtholders (agency problems) -------------------------------------------------------------------------------- Page 10 10Trade-off between tax shield and cost of financial distressValue of the firm =Value of all equity financed+ PV tax shield- PV costs of financial distressOptimalDebt RatioValue if all equity financedPV of costs of financial distressPV Tax ShieldsDebt RatioMarket Value -------------------------------------------------------------------------------- Page 11 11Bankruptcy Costs? Jerry Warner examined bankruptcies of 11 railroads to estimate the costs of bankruptcy? The bankruptcy proceedings typical lasted many years...
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bankruptcy code? Chapter 7 bankruptcy- Absolute priority? Chapter 11 bankruptcy- Debtholders and equityholders get new claims instead of the old ones- Reorganization plan -------------------------------------------------------------------------------- Page 9 9Costs of bankruptcy? Direct costs- Management time- Legal expenses and advisors' fees- Court costs? Indirect costs- Conflicts of interests between equityholders and debtholders (agency problems) -------------------------------------------------------------------------------- Page 10 10Trade-off between tax shield and cost of financial distressValue of the firm =Value of all equity financed+ PV tax shield- PV costs of financial distressOptimalDebt RatioValue if all equity financedPV of costs of financial distressPV Tax ShieldsDebt RatioMarket Value -------------------------------------------------------------------------------- Page 11 11Bankruptcy Costs? Jerry Warner examined bankruptcies of 11 railroads to estimate the costs of bankruptcy? The bankruptcy proceedings typical lasted many years...
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