Prescott Inc. has the following data regarding its financial structure:

Market value of outstanding debt:	$2,500,000
Value of firm if financed with all equity:	$16,750,000
Number of shares outstanding:	350,000
Current price per share:	$38.00
Tax rate:	32 %

What is the decrease in firm value due to expected bankruptcy costs?

You Answered

$3,450,000

$800,000

$1,750,000

$1,825,000