Which of the following statements is FALSE about financial distress? A) Financial distress increases with leverage....
- Which of the following statements is FALSE about financial distress?
A) Financial distress increases with leverage.
B) Financial distress is at its minimum when optimal leverage is achieved.
C) Fire sale means that financially distressed firms sell their assets at a large discount.
D) Financial distress is a type of costs of debt.
Homework Answers
D) Financial distress is a type of costs of debt.
Financial distress is a kind of situation where the company is not generating adequate revenue for meeting its financial needs. it is not a cost, it is a condition.
Financial distress will increase with leverage because leverage will create higher interest expense which will impact the situation of the company.
Financial distress is at its minimum when optimal leverage is achieved: Just like the above mentioned point, the distress will be at the lowest with an optimal leverage situation
In order to overcome the distress, the company may try to sell off it's assets and sometimes at a higher discount too
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Which of the following statements is FALSE about financial
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