A high debt ratio debt may NOT be resolved bywhich of the following?(a) Debt refinancing;(b) Debt for equity swap;(c) Defaulting on the debt;(d) Debt rescheduling
Question
A high debt ratio debt may NOT be resolved bywhich of the following?(a) Debt refinancing;(b) Debt for equity swap;(c) Defaulting on the debt;(d) Debt rescheduling
Solution
The high debt ratio may not be resolved by (c) Defaulting on the debt.
Here's why:
(a) Debt refinancing: This involves replacing an existing debt with a new one with different terms. If the new terms are more favorable, it could potentially help to lower the debt ratio.
(b) Debt for equity swap: This is a financial transaction in which creditors agree to cancel a portion or all of the outstanding debt in exchange for equity in the company. This can also help to lower the debt ratio.
(c) Defaulting on the debt: This is when a debtor fails to pay back a debt according to the initial terms of the loan. Defaulting on the debt does not resolve a high debt ratio. Instead, it can lead to legal action from creditors, damage to the company's credit rating, and potential bankruptcy.
(d) Debt rescheduling: This is a mutual agreement between the debtor and the creditor to extend the time for debt repayment or to change the repayment terms. This can potentially help to lower the debt ratio if the new terms are more favorable.
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