Ch15. Limits Of Debt Flashcards
1
Q
Stockholders bear the cost of bankruptcy
A
yes
2
Q
Direct Costs
A
Legal and admin costs
3% of market value
3
Q
Indirect costs
A
inability to conduct business
10 to 20% market value
4
Q
Financial Distress costs
A
Both direct & indirect
5
Q
High Debt
A
high chances for going bankrupcy
6
Q
Agency costs with Debt
A
selfish straget1 : Incentive to take large risks
selfish stragegy2: Incetive towards underinvestment
selfish stragegy3: milking the property
