Because Creditors Can Foresee, to at Least Some Extent, the Costs

question 7

True/False

Because creditors can foresee, to at least some extent, the costs of bankruptcy, they charge a higher rate of interest to compensate for the present value of bankruptcy costs.

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Definitions:

Economics

The study of how people use their scarce resources to satisfy their unlimited wants

Physical Capital

Manufactured items used to produce goods and services; includes new plants and new equipment.

Petty Cash

A small amount of cash on hand that is used for paying minor or incidental expenses in a business.

Free Goods

Items or services available in abundance without direct cost, such as air or sunlight, not requiring scarce resources for their production.