Asked by Ingrid Depaz on May 08, 2024
Verified
Which one of the following statements concerning bankruptcy is correct?
A) A firm is considered bankrupt when it becomes delinquent on a loan payment.
B) The administrative expenses of a bankruptcy are classified as indirect bankruptcy costs.
C) Bankruptcy costs may offset the tax-related gains from leverage.
D) The higher cost of capital which a firm pays in order to avoid excessive debt is considered a direct cost of bankruptcy.
E) Bankruptcy is a relatively inexpensive process.
Bankruptcy Costs
Expenses associated with the process of declaring bankruptcy, including legal fees, filing fees, and other related costs.
Administrative Expenses
Costs related to the general operations of a business that are not directly tied to a specific project or product.
Tax-Related Gains
Profits derived from tax strategies, deductions, or credits that reduce the overall tax liability.
- Examine how taxes influence a firm's capital costs and comprehensive financial choices.
- Understand the impact of decisions regarding capital structure on the valuation of a firm and its capital cost.
Verified Answer
Learning Objectives
- Examine how taxes influence a firm's capital costs and comprehensive financial choices.
- Understand the impact of decisions regarding capital structure on the valuation of a firm and its capital cost.
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