Question

For a firm with enough assets to repay debt, it incurs no financial distress cost when...

For a firm with enough assets to repay debt, it incurs no financial distress cost when borrowing in the debt market.

A. TRUE

B. FALSE

Justify your choice here in 30 words

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Answer #1

The given statement is FALSE because financial distress caused is not about having assets but it is more about income generating capacity of those assets in order to remain liquid and to pay cash to fund the debt repayment obligation.

in this case, it is said that because the company is having enough assets to repay the debt, it is having no distress cost when borrowing in the debt market but actually it is having the distress cost, as it will depend upon the liquidity of those assets and the income generation capacity of those assets in order to fund the the debt repayment obligation

The given statement is FALSE.

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