NARRBEGIN: Bavarian Brew Bavarian Brew

NARRBEGIN: Bavarian Brew
Bavarian Brew
Bavarian Brew,an unlevered firm,has an expected EBIT of $500,000.The required return on assets for the firm's assets is 10%.The company has 250,000 shares outstanding.The company is considering raising $1 million in debt with a required return of 6% and would use the proceeds to repurchase outstanding stock.
-Refer to Bavarian Brew.What is the PV of bankruptcy costs for which the company is indifferent about the proposed change in capital structure?

A) $450,000
B) $750,000
C) $340,000
D) $275,000