Question: Please show all work so I can learn this. Answer must be A,B,or C below to be correct. Thanks for your help! Prescott Inc. has

Please show all work so I can learn this. Answer must be A,B,or C below to be correct. Thanks for your help!

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: 35 %

What is the decrease in firm value due to expected bankruptcy costs?

A.) $1,000,000

B.) $5,550,000

C.) $2,450,000

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