Answer:
$650,000
Explanation:
For computing the decrease in the expected bankruptcy costs, first we have to determine the total firm value in each case which is shown below:
Total firm value = Equity + Debt × corporate tax rate
= $17,850,000 + $6,000,000 × 0.35
= $17,850,000 + $2,100,000
= $19,950,000
Now the total firm value based on market share
= Equity + Debt
= 350,000 shares × $38 + $6,000,000
= $13,300,000 + $6,000,000
= $19,300,000
The difference would be
= $19,950,000 million - $19,300,000
= $650,000
