King, Incorporated, has debt outstanding with a face value of $5.6 million. The value of the firm if it were entirely financed by equity would be $25.2 million. The company also has 395,000 shares of stock outstanding that sell at a price of $52 per share. The corporate tax rate is 21 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Financial distress costs 1,164,000

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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King, Incorporated, has debt outstanding with a face value of $5.6 million. The value of
the firm if it were entirely financed by equity would be $25.2 million. The company also
has 395,000 shares of stock outstanding that sell at a price of $52 per share. The
corporate tax rate is 21 percent. What is the decrease in the value of the company due to
expected bankruptcy costs? (Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g.,
1,234,567.)
Financial distress costs
$
1,164,000
Transcribed Image Text:King, Incorporated, has debt outstanding with a face value of $5.6 million. The value of the firm if it were entirely financed by equity would be $25.2 million. The company also has 395,000 shares of stock outstanding that sell at a price of $52 per share. The corporate tax rate is 21 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Financial distress costs $ 1,164,000
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