You then need to watch a YouTube video presentation on your chosen topic and then post the presentation summary in the dialog box. Your summary must consist of at least one paragraph of reasonable length (7-9 sentences). Your post must include the following (in this order):
1, Title (Chapter # and topic)
2. Summary of the presentation
3. Link to the video
You may, at your discretion, watch multiple videos on your chosen topic. In that case, you must provide the links to all the videos.
Therefore, The topic: THE EFFECT OF POTENTIAL BANKRUPTCY
MMâ€™s irrelevance results also depend on the assumption that firms donâ€™t go
bankrupt and hence that bankruptcy costs are irrelevant. However, in practice,
bankruptcy exists, and it can be quite costly. Firms in bankruptcy have high legal
and accounting expenses, and they have a hard time retaining customers, suppliers,
and employees. Moreover, bankruptcy often forces a firm to liquidate assets
for less than they would be worth if the firm continued to operate. Assets such as
plant and equipment are often illiquid because they are configured to a companyâ€™s
individual needs and because they are difficult to disassemble and move.
Note too that the threat of bankruptcy, not just bankruptcy per se, brings about
these problems. If they become concerned about the firmâ€™s future, key employees
start â€œjumping ship,â€ suppliers start refusing to grant credit, customers begin
seeking more stable suppliers, and lenders start demanding higher interest rates
and imposing stricter loan covenants.
Bankruptcy-related problems are likely to increase the more debt a firm has in
its capital structure. Therefore, bankruptcy costs discourage firms from pushing
their use of debt to excessive levels. Note too that bankruptcy-related costs have
two components: (1) the probability of their occurrence and (2) the costs that will
be incurred if financial distress arises. A firm whose earnings are relatively volatile,
all else equal, faces a greater chance of bankruptcy and thus should use less
debt than a more stable firm. This is consistent with our earlier point that firms
with high operating leverage (and thus greater business risk) should limit their
use of financial leverage. Likewise, firms whose assets are illiquid and would
have to be sold at â€œfire saleâ€ prices should limit their use of debt financing.