Indirect costs of financial distress:
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 direct costs such as legal and accounting fees.
D) tend to increase as the debt-equity ratio decreases.
E) include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.

Question

Quizplus · Accepted Answer

Indirect costs of financial distress include costs such as lost sales, loss of valuable employees, and efforts to avoid bankruptcy, which are not directly related to legal and accounting fees.

Indirect Costs of Financial Distress