Question: 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

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? (Show work )

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