Question:Which of the following is not a typical indirect financial distress cost of a company?
A. An increased 1% interest rate risk premium added to a new loan by company's bankers.
B. Loss of the sales director and the marketing director to a rival company.
C. Legal fees of $100,000 incurred in connection with a renegotiation of debt.
D. Sale of a warehouse for 75% of its book value in order to generate cash to pay suppliers.
The correct answer is: Legal fees of $100,000 incurred in connection with a renegotiation of debt.
Legal and administrative costs associated with bankruptcy or reorganisation of a company are classified as direct financial distress costs.
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