Smoke and Mirrors, an all-equity firm, currently has a market value of $162,500. The firm pays corporate taxes equal to 35% of taxable income. The discount rate for the firm's projects is 10%. Now the firm issues $80,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent but will raise the probability of bankruptcy. The firm has a 15% chance of going bankrupt after 3 years. If it does go bankrupt, it will incur bankruptcy costs of $200,000. The discount rate is 10%. What will happen to the total value of the firm (debt plus equity)?

A. The value of the firm decreases by $4,800.

B. The value of the firm increases by $28,000.

C. The value of the firm decrease by $22,539.

D. The value of the firm increases by $5,461.