Explain what is meant by indirect costs of financial distress. Before
QUESTION
Explain what is meant by indirect costs of financial distress.
Before we discuss what are the indirect costs associated with financial distress we need to know what actually financial distress is. Financial distress is one situation where company finds it difficult to pay off its creditors, where company borrows excessive funds to finance its day to day operations and finally lead to bankruptcy. Now there are several costs which are indirect in nature attached with a financial distressed company and few of them are; 1)¦
en there is financial distress in company managers can cut down on research and development on products. 2) Cut down on investments can occur in order to spare cash. 3) Firms reputation can be badly affected and hence loss of consumers can occur. 4) Company may be forced to pay bigger cost of capital.
ANSWER:
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