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

Debt outstanding = $5,600,000Value of equity = $25,200,000Outstanding Stock = 395,000Price Per Share…

Answered: King, Incorporated, has debt…

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

Section: Chapter Questions

Problem 1PS

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Sydney’s Shrimpboat's net capital spending was $350,000 this year. The firm also reduced its NWC by $250,000. Their interest expense was $75,000 and the firm net redeemed $20,000 in long term debt. The company does not pay a dividend and did not issue any stock, but did repurchase $50,000 of common stock. What was the firm’s OCF for the year? a. $ 95,000 b. $245,000 c. $275,000 d. $100,000 e. $145,000
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A
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