Please answer the following multiple choice question.
Please provide how you got to the answer:
2) 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:||35 %|
What is the decrease in firm value due to expected bankruptcy costs?