One of the factors that determines the present value (PV)of financial distress costs is:
A)costs of unpaid interest arrears.
B)loss of dividend payments.
C)probability of financial distress.
D)employee compensation.
E)size of the interest tax shield.

Question

Quizplus · Accepted Answer

The probability of financial distress is a key factor in determining the present value of financial distress costs. This is because the likelihood of financial distress affects the potential costs that a firm may face in the future, such as bankruptcy costs, liquidation costs, and legal fees. The higher the probability of financial distress, the higher the PV of financial distress costs. Therefore, C is the correct answer. The other options may also impact the PV of financial distress costs, but they are not the primary factor.

One of the Factors That Determines the Present Value (PV)of