Indirect Bankruptcy Costs

question 49

Multiple Choice

Indirect bankruptcy costs:

• A)effectively limit the amount of equity a firm issues.
• B)serve as an incentive to increase the financial leverage of a firm.
• C)include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.
• D)tend to increase as the debt-equity ratio decreases.
• E)include direct costs such as legal and accounting fees.

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Definitions:

Nash Equilibrium

A concept in game theory where each player's strategy is optimal given the strategies of all other players in the game, leading to a situation from which no player has an incentive to deviate.

Prisoner's Dilemma

A scenario in game theory where two individuals acting in their own self-interest do not produce the optimal outcome, showcasing the conflict between personal and collective rationality.

Payoff Matrix

A table that illustrates the outcomes (or payoffs) of different strategies or decisions made by players in a strategic or game-theoretic context.

Decision Nodes

Points in a decision process at which choices among alternative actions must be made.