Which of the Following Is the Best Definition of Direct

question 165

Multiple Choice

Which of the following is the best definition of direct bankruptcy costs?

• A) The costs that are directly associated with bankruptcy, such as legal and administrative expenses.
• B) The cost of capital of a firm that has no debt.
• C) Theory that a firm borrows up to the point where the tax benefit from an extra dollar in debt is exactly equal to the cost that comes from the increased probability of financial
• Distress.
• D) The equity risk that comes from the nature of the firm's operating activities.
• E) The tax saving attained by a firm from interest expense.