Given Realistic Estimates of the Probability and Cost of Bankruptcy

Multiple Choice

Given realistic estimates of the probability and cost of bankruptcy, the future costs of a possible bankruptcy are borne by:

A) by all investors in the firm.
B) debtholders only because if default occurs interest and principal payments are not made.
C) equity holders because debtholders will pay less providing less cash for the equity holders.
D) management because if the firm defaults they will lose their jobs.