Which of the following is an indirect cost of financial distress? Firm Y is spen

Question

Which of the following is an indirect cost of financial distress?

Firm Y is spending $500,000 on hiring accountants to support their case in the bankruptcy court.

Firm X is unable to pay its debt obligations and therefore it will be spending $2 million dollars on legal expenses.

Firm X believes it will incur a fee of $300,000 to pay for filing and other expenses once it is required to appear in the bankruptcy court.

10 percent of Customers of Firm Y decided to switch to other firm because they are afraid that Firm Y will be heading to bankruptcy.

Explanation / Answer

10 percent of Customers of Firm Y decided to switch to other firm because they are afraid that Firm Y will be heading to bankruptcy.

Indirect cost is the cost that cannot be directly traced. Lost revenue, lost opportunities are the some of the indirect costs of financial distress. These costs affect the business a lot and add fuel to company’s bankruptcy.

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