Given Realistic Estimates of the Probability and Cost of Bankruptcy

question 19

Multiple Choice

Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:

• A)all investors in the firm.
• B)debtholders only because if default occurs interest and principal payments are not made.
• C)shareholders because debtholders will pay less for the debt providing less cash for the shareholders.
• D)management because if the firm defaults they will lose their jobs.
• E)None of the above.