Custer's Has Bonds Outstanding with a Face Value of $98,000

question 23

Multiple Choice

Custer's has bonds outstanding with a face value of $98,000 that are selling at par.It also has 12,000 shares of stock outstanding that are selling for $25.90 a share.The all-equity value of the firm is $398,000.The tax rate is 35 percent.By what amount has the value of the firm been decreased by the expected bankruptcy costs? Assume there are no other claims on the firm.

• A)$21,300
• B)$18,900
• C)$23,500
• D)$0
• E)$20,750

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