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:

Quick Ratio

A financial metric that measures a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.

Current Liabilities

Short-term financial obligations due within one year or within the entity's operating cycle if longer.

Debt-Paying Ability

An indication of a company's financial strength, referring to its capacity to meet its debt obligations as they come due.

Solvency

The ability of a company or individual to meet long-term financial obligations, indicating financial health.