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Weihong Corporation is about to emerge from a Chapter 11 reorganization. Assets of the emerging entity...

Weihong Corporation is about to emerge from a Chapter 11 reorganization. Assets of the emerging entity have a total book value of $3,000,000. Of these, assets with a book value of $600,000 are not needed to operate the emerging entity and will be sold for an expected price of $460,000. The remaining assets will be used in operations. Operations are expected to generate an annual net cash flow of $350,000. This amount is projected for the next five years; a discount rate of 10 percent is deemed appropriate. Required Calculate Weihong Corporation’s reorganization value. For convenience, assume the operating cash flows take place at the end of each year. Round your answer to the nearest whole number

PS: I already submitted this question but the answer was wrong, it is not 1786500

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Expert Solution

Reorganization value as on today will be sum of the following two amounts:

1. present value of annuity of $350,000 for 5 years

Y1 Y2 Y3 Y4 Y5 Total
         350,000          350,000          350,000          350,000          350,000
           0.9091            0.8264            0.7513            0.6830            0.6209
         318,182          289,256          262,960          239,055          217,322 1326775

2. Present value of $ 450,000 = 450,000*.9091=418182

Total reorganization value = 1,744,957 (i.e. 1,326,775+418,182)

ekkarill92 answered 2 months ago
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