The most significant potential cost of financial

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firm may lose tax shields during periods of financial distress. The most significant potential cost of financial distress and bankruptcy is an indirect cost that can be difficult to measure but should not be underestimated. It arises because of the possibility that the firm will not continue as a going concern. This likelihood is important, because it can dramatically affect the value of the firm’s products and dramatically hurt sales. When potential customers fear product discontinuation, they will force the firm to sell its product for a lower
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price than what it would otherwise be worth. Even though it is an opportunity cost that’s difficult to measure, this loss is the largest of the financial distress and bankruptcy costs by a wide margin.
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