Question
Which of the following statements isFALSE? The magnitude of the financial distress costs will depend on the relative importance of the sources of these costs
Which of the following statements isFALSE?
The magnitude of the financial distress costs will depend on the relative importance of the sources of these costs and is likely to vary by industry.
Calculating the precise present value of financial distress costs is a relatively straightforward process.
Two key qualitative factors determine the present value of financial distresscosts: (1) the probability of financial distress and(2) the magnitude of the costs after a firm is in distress.
Technology firms are likely to incur high costs when they are in financialdistress, due to the potential for loss of customers and keypersonnel, as well as a lack of tangible assets that can be easily liquidated.
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