Prescott Inc. has the following data regarding its financial structure: Market value...
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Accounting
Prescott Inc. has the following data regarding its financial structure:
| Market value of outstanding debt: | $7,000,000 |
| Value of firm if financed with all equity: | $18,850,000 |
| Number of shares outstanding: | 350,000 |
| Current price per share: | $38.00 |
| Tax rate: | 30 % |
What is the decrease in firm value due to expected bankruptcy costs?
A) $650,000
B) $5,550,000
C) $2,100,000
D) $1,000,000
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