Indirect bankruptcy costs:
A)effectively limit the amount of equity a firm issues.
B)serve as an incentive to increase the financial leverage of a firm.
C)include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.
D)tend to increase as the debt-equity ratio decreases.
E)include direct costs such as legal and accounting fees.

Question

Quizplus · Accepted Answer

Indirect bankruptcy costs include any costs incurred by a firm as it tries to avoid bankruptcy, such as the cost of restructuring or negotiating with creditors. These costs can be significant and can also include the loss of customers, suppliers, and employees. Indirect bankruptcy costs can be a powerful incentive for firms to avoid bankruptcy and to maintain a healthy financial position.

Indirect Bankruptcy Costs