Aswath Damodaran 295
Debt & Bankruptcy Cost
Rank the following companies on the magnitude of bankruptcy costs from most
to least, taking into account both explicit and implicit costs:
# A Grocery Store
# An Airplane Manufacturer
# High Technology company
I would expect a grocery store to have the lowest bankruptcy costs. Customers
generally do not consider the rating or default risk of grocery stores when they
shop, but they definitely do consider both when placing an order for an airplane.
Technology companies can have high bankruptcy costs, but the costs will vary
depending upon what type of product they produce. A PC manufacturer might
be affected more than someone who manufacturers software; a company which
serves businesses might be affected more than one which creates games for
children.
