What are the direct and indirect costs of bankruptcy? Briefly explain each.


Description of Costs

1. What are the plain and inplain costs of withdrawal? Briefly illustrate each.

2. Chrysler’s financial constituency in August 1983 was as follows:

Security

Number of Units
Outstanding

Price per
Unit

Market
Value

Common fund

115,000,000

$26.00

$2,990,000,000

Preferred fund

10,000,000

32.5

325,000,000

Warrants

14,400,000

13.5

194,400,000

Bonds

2,000,000

650

1,300,000,000

Due to abundant losses incurred during 1978–1981, Chrysler had $2 billion in tax-loss carryforwards; for-this-reason, the proximate $2 billion of allowance was unreserved from corporate allowance taxes. At the interval, the consent of pledge analysts was that Chrysler would not feel cumulative produce in extravagance of $2 billion balance the proximate five years. Most of the preferred fund was held by banks. Chrysler had agreed to shrink the preferred fund balance the proximate few years. Chrysler had to run whether to offspring obligation or retail despicable equity to lift the funds needed to shrink the preferred fund. If you were Lee Iacocca, what would you feel done? Why?