What is the decrease in the value of the company

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Kaputt, Inc. has debt with a face value of $10 million trading at par. The value of the firm, if it were entirely financed by equity, would be $36 million. The company also has a 350,000 shares of stock outstanding that sell at the price of $75 per share. The corporate tax rate is 30%.

What is the decrease in the value of the company due to expected bankruptcy costs? $ (accurate to $1)

Hint: Apply MM II to compute the value of the levered company. Subtract the actual value.

Reference no: EM132467181

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