The Implicit Costs Associated with Corporate Default, Such as Lost

question 207

Multiple Choice

The implicit costs associated with corporate default, such as lost sales, are the __________ of the firm.

• A) Flotation costs.
• B) Default beta coefficients.
• C) Direct bankruptcy costs.
• D) Indirect bankruptcy costs.
• E) Default risk premium.

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Definitions:

Terminal Growth Rate

The rate at which a company's free cash flow is expected to grow at indefinitely, used in the discounted cash flow analysis to estimate a company's value.

Plowback Ratio

The proportion of earnings retained by a business, rather than paid out as dividends, to reinvest in its core activities.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

FCFF

Free Cash Flow to the Firm; a measure of financial performance that shows how much cash is generated by a company after accounting for capital expenditures and operating expenses.