Final answer:
Voluntary arrangements like an extension or composition are efforts to restructure a company's debt to avoid bankruptcy. An extension allows more time for debt repayment, while a composition involves agreement to pay less than owed. Utilizing such arrangements can prevent the depletion of cash reserves or the need to issue stock, allowing the company to focus on growth and stability.
"The correct option is approximately option C"
Step-by-step explanation:
Voluntary arrangements to restructure a company's debt to avoid bankruptcy are beneficial to all parties involved. This may involve c. extension or composition. When a company is facing the issue of satisfying its debt obligations, employing an extension means to arrange for additional time to repay the debts. A composition, on the other hand, refers to an agreement with creditors where the company pays less than the full amount owed or on different terms than originally agreed.
For instance, a small company may be earning little to no profits and decides to reinvest earnings into growth. However, if this firm issues bonds or borrows, it must make interest payments that can deplete its cash. Issuing stock eliminates this obligation, though it may lead to paying dividends. On the other hand, venture capitalists provide a means of raising capital while also bringing expertise and oversight; they mitigate information asymmetry through close involvement.
These financial decisions are critical. Borrowing from a bank or issuing bonds involves committing to scheduled interest payments. Whereas, issuing stock means selling off company ownership and dealing with shareholder requirements. In times of financial stress, exploring options like an extension or composition gives the company breathing room to improve its financial health and avoid the consequences associated with bankruptcy.