The possibility of bankruptcy has a negative effect on the value of the firm because:
A) increased bankruptcy risk lowers value.
B) reorganization is costless but risk is not.
C) a bankruptcy has real costs associated with it.
D) value enhancing strategies are no longer available.

Question

Quizplus · Accepted Answer

Bankruptcy has real costs, such as legal fees and loss of reputation, which can decrease the firm's value.

The Possibility of Bankruptcy Has a Negative Effect on the Value