Which one of these represents an indirect cost of financial distress?
A)Court fees paid to a bankruptcy court
B)Legal fees paid to bankruptcy attorneys
C)Additional accounting fees incurred by a firm in preparation for a liquidation
D)A firm's supplier requiring payment in cash rather than offering its normal credit terms
E)The expense incurred from hiring a consultant to evaluate a firm's dissolution options

Question

Quizplus · Accepted Answer

When a firm faces financial distress, suppliers may require payment in cash rather than offering their normal credit terms. This is an indirect cost of financial distress because the firm may have to pay more for goods and services upfront, which can strain its cash flow and make it more difficult to stay afloat. Court fees, legal fees, and accounting fees are all direct costs of financial distress, while hiring a consultant to evaluate dissolution options may be a direct or indirect cost depending on the specific circumstances.

Which One of These Represents an Indirect Cost of Financial