Question $4(10$ points$)$Bankruptcy is bad for the following reasons:i$)$ Shareholders find that their shares are usually worth less or nothing when a firm goes bankrupt because the firms business prospects are bad.ii In bankruptcy, claims are often restructured and the new claims have to be valued, which involves negotiating costs. This reduces firm value.iii$)$ Illiquid assets often have to be sold off in a rush at lower than intrinsicvalue. This reduces irm value.iv$)$ Bond prices drop when a firm goes bankrupt because business prospects are bad and the firm is less able to pay off their claims. Thus bankruptcy hurts bondholdersv$)$ In bankruptcy, assets either have to be sold off, generating transactions costs. Those that are not sold off have to be valued and this generates negotiating costs. This reduces firm value.