The Explicit and Implicit Costs Associated with Corporate Default Are

question 8

Multiple Choice

The explicit and implicit costs associated with corporate default are the ___________ of the firm.

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

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Definitions:

Contribution Margin

The selling price per unit minus the variable cost per unit, used to determine how sales affect net income.

Sales Projections

Estimates of the future sales revenue of a company, which are often based on historical sales data, market trends, and other relevant factors.

NPV

Net Present Value, a calculation used to determine the value of an investment by discounting future cash flows to their present value.

Payback Analysis

A financial analysis method used to determine the time required to recoup the cost of an investment or project.