Which One of the Following Is an Example of a Direct

question 31

Multiple Choice

Which one of the following is an example of a direct bankruptcy cost?

• A)Operating at a debt-equity ratio that is less than the optimal ratio
• B)Reducing the dividend payout ratio as a means of increasing a firm's equity
• C)Forgoing a positive net present value project to conserve current cash
• D)Incurring legal fees for the preparation of bankruptcy filings
• E)Losing a key customer due to concerns over a firm's financial viability

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Definitions:

Underwriting Compensation

Fees or commissions paid to underwriters for their services in issuing and selling new securities.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s profits or losses.

Investment Bankers

Financial intermediaries who facilitate capital raising, mergers, acquisitions, and initial public offerings (IPOs) for corporations and governments.

Firm Commitment Underwriting

An agreement where an underwriter commits to buy all the securities from the issuer and sell them to investors, assuming full financial risk.