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When securities are priced fairly, why would the original shareholders of a firm pay the present value of bankruptcy and financial distress costs?

Sagot :

When securities are priced fairly this would mean that the stock of an organization has gone down considerably. This could also show the chances of bankruptcy.

The original shareholders of a firm pay the present value of bankruptcy and financial distress costs to reduce the cash flow which is available to the investors.

What is financial distress?

  • It refers to the lost or reduced income.
  • It refers to a condition where the company is unable to generate revenue and profit.
  • This happens usually when there are high fixed costs.
  • It also refers to a situation when the company cannot pay its creditors back.

To learn more about financial distress visit:

https://brainly.com/question/15314133

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