Indirect bankruptcy costs Multiple Choice tend to increase a

Indirect bankruptcy costs

Multiple Choice

tend to increase as the debt-equity ratio decreases.

include the legal and accounting fees incurred during the bankruptcy process.

serve as an incentive to increase the financial leverage of a firm.

effectively limit the amount of equity a firm issues.

include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.

Solution

Correct option is > include the costs incurred by a firm as it tries to avoid seeking bankruptcy protection.

Indirect bankruptcy cost is related non-bankrupt state basically it is a financial distress situation and firm try to incur few costs like interest rate, high commission, selling quality asset for discount to avoid the bankruptcy.