Question

Which one of these represents an indirect cost of financial distress? Court fees paid to a bankruptcy court Legal fees paid to bankruptcy attorneys Additional accounting fees incurred by a firm in preparation for a liquidation A firm's supplier requiring payment in cash rather than offering its normal credit terms The expense incurred from hiring a consultant to evaluate a firm's dissolution options

Answer 1

A firm's supplier requiring payment in cash rather than offering its normal credit terms.

Step-by-step explanation:

Indirect cost of financial distress refers to a situation where an organization would have made revenue or profit, if it had not gone bankrupt.

Under indirect cost of financial distress, potential customers aren't willing to take the risk of patronizing a business that may not be able to provide or deliver its goods and services as a result of bankruptcy.

A firm's supplier requiring payment in cash rather than offering its normal credit terms represents an indirect cost of financial distress.