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circumstances. Describe the following terms related to . bankruptcy law: (More...) 25 11 Copyright 169。 20xx Harcourt Inc. All rights reserved. Liquidation Illustration Data (millions of $) Creditor Claims: Accounts payable $ Notes payable Accrued wages Federal taxes State and local taxes First mortgage Second mortgage Subordinated debentures* $ *Subordinated to notes payable. (More...) 25 19 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Assume you have the following 1997 data for 12 panies: ?Current ratio ?Debt ratio ?Six of the panies (marked by Xs) went bankrupt in 1998 while six (marked by dots) remained solvent. MDA Illustration (More...) 25 27 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?The most wellknown bankruptcy prediction model is Edward Altman’s five factor model. ?Such models tend to work relatively well, but only for the near term. ?The more similar the historical sample to the firm being evaluated, the better the prediction. Some Final Points 。 20xx Harcourt Inc. All rights reserved. Chapter 25 Extension ?MDA to predict bankruptcy ?Recent business failures 25 25 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Secured creditors. ?Trustee’s administrative costs. ?Expenses incurred after involuntary case begun but before trustee appointed. ?Wages due workers within 3 months prior to filing. List the priority of claims in a Chapter 7 liquidation. (More...) 25 17 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Workout: Voluntary informal reanization plan. ?Restructuring: Current debt terms are revised to facilitate the firm’s ability to pay. ?Extension: Creditors postpone the dates of required interest or principal payments, or both. Creditors prefer extension because they are promised eventual payment in full. Informal Bankruptcy Terminology (More...) 25 9 Copyright 169。25 1 Copyright 169。 20xx Harcourt Inc. All rights reserved. ?Informal reanization ?Informal liquidation