1. What are the advantages and disadvantages of a voluntary workout to resolve financial distress? What are the advantages and disadvantages of declaring bankruptcy to resolve financial distress?
2. A business can be liquidated for $700,000, or it can be reorganized. Reorganization would require an investment of $400,000. If the company is reorganized, earnings are projected to be $150,000 per year, and the company would trade at a price/earnings ratio of 8.0. Should the company be liquidated or reorganized?