Which of the following would be considered an indirect bankruptcy cost?
A) The cost of the extra insurance the bankruptcy court requires the ﬁrm to carry on its assets.
B) The cost the ﬁrm must pay to the court when ﬁling its bankruptcy petition.
C) The cost of the appraisals a ﬁrm must obtain on its assets by order of the bankruptcy court.
D) The fee the ﬁrm pays its lawyer to draw up the bankruptcy petition.
E) The cost to the ﬁrm of projects in-progress terminated in order to preserve cash.

Question

Quizplus · Accepted Answer

The cost to the firm of projects in-progress terminated in order to preserve cash would be considered an indirect bankruptcy cost. This is because the firm is forced to interrupt its ongoing projects, which can result in loss of productivity and revenue, and may ultimately affect the company's ability to recover from bankruptcy. The other options listed in the question are direct bankruptcy costs, as they are expenses that are directly incurred by the firm due to the bankruptcy process.

Which of the Following Would Be Considered an Indirect Bankruptcy