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What are Distress Costs?

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Distress cost is a special category of cost faced by firms that are in financial distress such as a higher cost of capital.
Financial distress is usually defined as breaking, or having difficulty in meeting, the terms of agreements with creditors. When this happens, a firm's cost of capital goes up to compensate for the risk of default. The firm may also be forced to sell assets quickly, resulting in losses.
If a firm fails to recover their finances, there are also administrative, legal and accounting costs of bankruptcy. If the firm liquidates as the result of bankruptcy, the costs of the final liquidation is also a distress cost.
Overview: Distress Cost
Special costs associated with a firm that is in financial distress such as increased cost of capital, legal expenses and losses due to the need to liquidate assets quickly.
Related Concepts
Next: Liquidity Risk

Business Costs

This is the complete list of articles we have written about business costs.
Applied Cost
Business Equipment
Capacity Cost
Capital Improvement
Carrying Costs
Closing Costs
Cost Of Capital
Cost Of Revenue
Cost Of Living
Direct Cost
Distress Cost
Fixed Costs
Friction Cost
Employee Costs
Holding Costs
Intangible Cost
Marginal Cost
Operating Cost
Operating Expenses
Legacy Costs
Outlay Cost
Lifetime Cost
Overhead Costs
Menu Costs
Relevant Cost
Normal Costs
Sunk Costs
Tangible Cost
Operational Costs
Travel Expenses
Unit Cost
Opportunity Cost
Variable Costs
Prospective Cost
Semi Variable Cost
Step Costs
Switching Costs
Transaction Costs
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