1) What are the direct and indirect costs of bankruptcy? Briefly explain each

        When a firm or company is unable to pay its corresponding finances, filing for bankruptcy is the next in line; however, filing for bankruptcy also has its associated fees or costs, and as the term implies, it is known as the bankruptcy cost– this is considered a deadweight context, considering that bankruptcy cost includes fees prior and post-bankruptcy filing, and other related financial obligations for the legal process, documentation, and et (Finance Management,  2021).

     The bankruptcy cost varies per firm or company, but it boils down to two concepts: direct and indirect. Direct costs pertain to cash outlays; this includes legal fees, accounting fees, losses secondary to assets sold at more reduced prices, or inclined rate with regards to borrowing cost because of poor credit value and also the scarcity of competent and valuable employees (Finance Management,  2021). Direct costs of bankruptcy also focus on the payments or fees give to the key actors, such as individuals in the administrative sector, liquidators, accountants, investors to the banks, and lawyers (Finance Management,  2021). The indirect cost, on the other hand, involves cash outflow but creates a tougher environment for the survival of the company or individual– these costs are related to distressing scenarios such as costs post-bankruptcy filing resulting in credit, employee loss, reduced lenders, and trust (Finance Management,  2021).

        Bankruptcy filing is also a process that involves the release of public information, including personal and prior suspicious and ill-mannered actions; hence, there is so-called bankruptcy protection (Finance Management,  2021).  However, several firms file for bankruptcy amidst actual or likely cases of litigation-related losses(Finance Management,  2021).  Indeed, filing for bankruptcy is a legal banking process whenever a firm or an individual is unable to fulfill their financial obligations, as this protects the firm from various debt obligations; and in cases of litigation-related losses, a bankruptcy filing may be considered, most especially if shareholders are displeased with declining financial performance and associated bookkeeping driven by the loss of market shares, customer trust, and tightened credits(Finance Management,  2021).

     Shareholders are being rewarded in two ways, either via dividends or buying back the shares of stock– while for companies that are well established are have an extensive resource of blue-chips, they reward their shareholders in both ways (Picardo, 2020).   The main distinction between the dividends or the repurchases or buybacks is that dividends represent a firm timeframe in terms of taxing, while repurchases focus on uncertain or indefinite future returns considering that tax may be deferred or hold until shares are eventually sold (Picardo, 2020). 

    Both the dividends and repurchases provide aid in terms of increasing the overall return rates from having a piece of ownership of shares in a company; however, several debates that up to this now are being argued– which of the two is better, and when is one superior to the other. Nonetheless, its significance and use vary with the company, management, and strategies (Picardo, 2020).   Dividends are a share of profits that the company firms pay to their valued shareholders at a specific time frame or even regular intervals. For most companies, cash dividends are always used. According to Standard & Poors, since the 1930s,  dividends have provided many contributions to the U.S stock market. Capital gains are then acquired from price appreciation. However, for start-up companies and some other high-caliber industrial firms, most especially in the technology sectors, dividends are rarely offered (Picardo, 2020). 

       Buybacks, on the other hand, are repurchases by the company from the shares– its biggest benefit is that it leads to a reduction in the outstanding number of shares. Buybacks increase per-share, which relatively measures the profitability; hence earnings-per-share (EPS), and the cash-flow-per-share, which is also vital in improving the performance of return on equity (Picardo, 2020).  These parameters, which are further developed and improved, are the key drivers in order for the price of shares to increase over time, leading to more capital gains for the valued shareholders of the company firm. However, the profits acquired will not be eventually taxed not unless a shareholder is able or willingly sell their shares, which in effect, increases the capital gains made by the shareholders and within the shareholdings (Picardo, 2020).