The probability of financial distress depends on the
A)chance that a firm's raw material costs will increase.
B)likelihood of asset growth.
C)likelihood of dividend payments.
D)likelihood that a firm will be unable to meet its debt commitments.

Question

Quizplus · Accepted Answer

Financial distress refers to the situation where a firm is unable to meet its debt commitments. Therefore, the probability of financial distress depends on the likelihood of a firm being unable to meet its debt obligations, which is option D. Option A is incorrect because raw material costs, while important, do not directly impact a firm's probability of financial distress. Option B and C are also incorrect as asset growth and dividend payments may impact a firm's financial performance but are not direct indicators of financial distress.

The Probability of Financial Distress Depends on the