invic

Which of the following is least likely to be categorized as a cost of financial distress?

A) Legal fees paid to bankruptcy lawyers.

B) Having a potential merger partner pull out of a proposed deal.

C) Premiums paid for bonding insurance to guarantee management performance.

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Premiums paid for bonding insurance to guarantee management performance is an example of an agency cost. Agency costs are costs associated with the fact that all public companies are not managed by owners and the conflict of interest created by that fact. Costs of financial distress can be direct or indirect. Direct costs would include cash expenses associated with bankruptcy, such as legal and administrative fees, while indirect costs would include foregone business opportunities, inability to access capital markets, or loss of trust from customers, suppliers, or employees.