Cool Refreshments Has Bonds Outstanding with a Face Value of $140,000

question 25

Multiple Choice

Cool Refreshments has bonds outstanding with a face value of $140,000 that are selling at par.It also has 15,000 shares of stock outstanding that are selling for $19.80 a share.The all-equity value of the firm is $395,000.The tax rate is 34 percent.What is the value of the financial distress costs? Assume there are no other claims on the firm.

• A)$5,600
• B)$4,800
• C)$6,200
• D)$5,100
• E)$6,500

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Definitions:

Legal Entities

Organizations or structures that are recognized by law as having rights and responsibilities, such as corporations, partnerships, and sole proprietorships.

Economic Entities

Organizations or units that engage in economic activities, recognized as separate from their owners.

Wholly Owned Subsidiaries

Companies whose entire share capital is 100% owned by another company, the parent company.

Revenue from Investment

Income earned from investing in financial assets or other assets, including interests, dividends, or capital gains.