Which one of the following is a direct bankruptcy cost?
A)company CEO's time spent in bankruptcy court
B)maintaining cash reserves
C)maintaining a debt-equity ratio that is lower than the optimal ratio
D)losing a key company employee
E)paying an outside accountant fees to prepare bankruptcy reports

Question

Quizplus · Accepted Answer

Paying an outside accountant fees to prepare bankruptcy reports is a direct bankruptcy cost as it involves the actual expense of hiring an external professional service to handle bankruptcy proceedings. The other options do not involve direct expenses related to bankruptcy. Company CEO's time spent in bankruptcy court, maintaining cash reserves, maintaining a debt-equity ratio that is lower than the optimal ratio, and losing a key company employee are all indirect bankruptcy costs.

Which One of the Following Is a Direct Bankruptcy Cost