Question: Dragula Inc has debt outstanding with a face value of
Dragula, Inc., has debt outstanding with a face value of $3.8 million. The value of the firm if it were entirely financed by equity would be $12.3 million. The company also has 245,000 shares of stock outstanding that sell at a price of $38 per share. The corporate tax rate is 35 percent. What is the decrease in the value of the company due to expected bankruptcy costs?
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