The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as ________ costs.
A)indirect bankruptcy
B)direct bankruptcy
C)financial solvency
D)capital structure
E)flotation

Question

Quizplus · Accepted Answer

The costs of avoiding bankruptcy, such as hiring financial advisors or taking on additional debt to make interest payments, are classified as indirect bankruptcy costs. These costs arise as a result of the firm's financial distress and its efforts to stay afloat without filing for bankruptcy. Direct bankruptcy costs, on the other hand, refer to the costs associated with the actual bankruptcy process, such as legal fees and court costs.

The Costs of Avoiding a Bankruptcy Filing by a Financially