Answer:
$660,000
Explanation:
According to M & M proportion I with taxes, the value of the levered firm is:
V (Firm) = V (Equity) + V (Debt)
= $28,400,000 + 0.25(6,000,000)
= $28,400,000 + $1,500,000
= $29,900,000
Total market value of the firm:
= Market value of the debt + Market value of equity
= $6,000,000 + stock outstanding × Selling price per share
= $6,000,000 + 415,000 × $56 per share
= $29,240,000
With non-marketed claims, such as bankruptcy costs, we would expect the two values to be the same.
The differences are the non-marketed claims:
Expected bankruptcy costs = $29,900,000 - $29,240,000
= $660,000
