Asked by Joselyne Saldaña Gonzalez on Jul 16, 2024
Verified
Which of the following would be considered an indirect bankruptcy cost?
A) The cost of the extra insurance the bankruptcy court requires the firm to carry on its assets.
B) The cost the firm must pay to the court when filing its bankruptcy petition.
C) The cost of the appraisals a firm must obtain on its assets by order of the bankruptcy court.
D) The fee the firm pays its lawyer to draw up the bankruptcy petition.
E) The cost to the firm of projects in-progress terminated in order to preserve cash.
Indirect Bankruptcy Cost
Expenses that a company incurs when it approaches bankruptcy that do not include actual legal and other direct costs, such as lost sales, damage to reputation, and management distraction.
Bankruptcy Court
A specialized federal court dealing with cases involving individuals or businesses that cannot repay their outstanding debts.
- Distinguish between the costs associated with direct and indirect bankruptcy, and comprehend their effects on business organizations.
Verified Answer
SS
Savannah SmithJul 21, 2024
Final Answer :
E
Explanation :
Indirect bankruptcy costs include the potential loss of business, damage to reputation, or operational disruptions, such as the cost to the firm of projects in-progress terminated in order to preserve cash. These costs are not directly related to the legal process of bankruptcy but are consequences of the firm's financial distress.
Learning Objectives
- Distinguish between the costs associated with direct and indirect bankruptcy, and comprehend their effects on business organizations.