The costs of avoiding a bankruptcy ﬁling by a ﬁnancially distressed ﬁrm are classiﬁed as _____ costs.
A) Flotation.
B) Direct bankruptcy.
C) Indirect bankruptcy.
D) Financial solvency.
E) Capital structure.

Question

Quizplus · Accepted Answer

Indirect bankruptcy costs refer to the costs incurred by a financially distressed firm in order to avoid filing for bankruptcy. These costs can include legal fees, financial advisory fees, and other expenses associated with restructuring or negotiating with creditors. Flotation costs refer to the costs incurred by firms when issuing securities or going public, while direct bankruptcy costs refer to the costs of actually filing for bankruptcy, such as legal fees and court costs. Financial solvency and capital structure are not relevant to the question.

The Costs of Avoiding a Bankruptcy ﬁLing by a ﬁNancially