The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as ________ costs.
A) flotation
B) issue
C) direct bankruptcy
D) indirect bankruptcy
E) unlevered

Question

Quizplus · Accepted Answer

Direct bankruptcy costs are the explicit costs associated with corporate default, such as legal and administrative expenses, whereas flotation and issue costs are associated with raising capital, and indirect bankruptcy costs refer to losses associated with reduced investment and creditworthiness. Unlevered refers to a company that has no debt. Therefore, the best choice is C) direct bankruptcy.

The Explicit Costs, Such as Legal and Administrative Expenses, Associated