Custer's Has Bonds Outstanding with a Face Value of $162,000

question 21

Multiple Choice

Custer's has bonds outstanding with a face value of $162,000 that are selling at par.It also has 10,000 shares of stock outstanding that are selling for $32.30 a share.The all-equity value of the firm is $455,000.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)$11,300
• B)$18,600
• C)$26,700
• D)$0
• E)$30,000

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Definitions:

LLCs

Limited Liability Companies, a business structure in the United States where the owners are not personally liable for the company's debts or liabilities.

First Nation

A term used in Canada to denote indigenous peoples, primarily those formerly referred to as "Indians."

Passive Investors

Investors who take a long-term strategy, typically relying on index funds or ETFs, avoiding frequent trading.

LLC Losses

Refers to financial deficits that a Limited Liability Company (LLC) incurs during its operational activities, affecting the company's bottom line and potentially its members' financial contributions.