If George has invested $300,000 in a privately held stock. If the corporation does not do...

If George has invested $300,000 in a privately held stock. If the corporation does not do well and must declare bankruptcy. What amount does Thomas stand to lose?

		Up to his total investment of $300,000.
		Zero.
		$300,000 plus any personal assets the creditors demand.
		$150,000

Expert Solution

The answer is Option A - George will stand to lose up to his total investment of $300,000

Explanation:

The reason for the above answer is that private companies have a distinct characteristic of limited liability, that is any owner (shareholder/ stockholder) of the company shall be made liable in case of bankruptcy only up to the extent of the amount he has subscribed to or guaranteed to pay. Unlike a partnership or sole proprietorship, the liability here is limited. Thus, even in case of bankruptcy or failure of the company, neither the company nor the creditors can demand any money from George for their dues.

However, the investment made by George will not recoverable either by selling or through surrendering the share to the company in the event of bankruptcy. Thus, this amount will be the maximum loss in case of bankruptcy.

I am really trying my best to help you with my heart and all of my efforts - please do give a like if it was helpful for you :)

ekkarill92 answered 2 years ago

(1) A privately held corporation has a limited life because it is tied to the physical...

(1) A privately held corporation has a limited life because it is tied to the physical lives of its owners. True or False (2) A corporation is a legal entity separate from its owners. True or False (3) Discuss the differences between common and preferred shares. (4) Buying shares in a corporation is attractive to investors because Multiple Choice (A) corporation has unlimited life. (B) All of these answers are correct. (C) Shareholders are not agents of the corporation. (D)...

Value preposition for a insurance company has to be privately held what way do you add...

Value preposition for a insurance company has to be privately held what way do you add value over your competitors....

The Henley Corporation is a privately held company specializing in lawn care products and services. It...

The Henley Corporation is a privately held company specializing in lawn care products and services. It was a WACC of 12.5%. Further, the most recent financial statements are shown below. Income Statement for the year ending December 31 (Millions of Dollars Except for Per Share Data) 2007 Net sales $800.00 Operating Costs (except depreciation) 576 Depreciation 60 Earnings before interest and taxes (EBIT) $164.00 Less interest 32 Earnings before taxes $132.00 Taxes (40%) 52.8 Net income available for common stockholders...

A small privately held corporation is trying to raise money for a business expansion. The total...

A small privately held corporation is trying to raise money for a business expansion. The total cost of the expansion is $5,000,000. The expected return on assets before taxes (EBIT) for the business expansion project based upon the expected probabilities of returns are .2 of an 8% return, .5 of a 10% return and .3 of a 12% return. The privately held corporation’s owners are considering two options which involve obtaining one of two types of loans from an area...

Q1：Assume that your portfolio has three stocks. You have $300,000 invested in stock A that is...

Q1：Assume that your portfolio has three stocks. You have $300,000 invested in stock A that is returning 17%, $300, 000 invested in stock B that is returning 16%, and $400,000 invested in stock C that is returning 18%. What is the expected return of your portfolio? Q2: A beta coefficient for a stock of 0.8 implies A. the stock is more risky than the market because an 1% decrease in the stock return will cause the market return to decrease...

A portfolio has $200,000 invested in bonds and $300,000 invested in stocks. The bonds have an...

A portfolio has $200,000 invested in bonds and $300,000 invested in stocks. The bonds have an expected return of 8% a with a standard deviation of 12%. The stocks have an expected return of 12% with a standard deviation of 20%. The correlation between the stocks and bonds is 0.40. 1. What is the portfolio weight for the bonds? 2. What is the portfolio weight for the stocks? 3. What is the expected return for the portfolio? (Treat the expected...

How does the status of a company (privately held versus publicly traded) affect the relevancy of...

How does the status of a company (privately held versus publicly traded) affect the relevancy of capital structure? Explain why and use either a hypothetical or real world example to support your answer.

On April 4, 2017, Mexco sold stock it held as an investment. It had a $300,000...

On April 4, 2017, Mexco sold stock it held as an investment. It had a $300,000 short-term capital loss on the sale. It also sold a building, equipment, and the land under the building on July 1, 2017. Information about each asset is presented below. Mexco used MACRS depreciation on the equipment and straight-line depreciation on the building. Additionally, Mexco had a $75,000 Code Sec. 1231 loss last year (and it has no Code Sec. 1231 gains or losses in...

You are the CEO of a privately held company. Your company has a project regarding the...

You are the CEO of a privately held company. Your company has a project regarding the development and marketing of a new product. The project requires an initial investment (at t=0) of $100m, and will generate a payoff only during the following period, t=1. The payoff at t=1 is random, and depends on your marketing strategy at that time. In particular, you will be able to follow either a conservative strategy (strategy C) or an aggressive strategy (strategy A). Payoffs...

Even though Bergeron Wholesale Company is privately held, management has decided that it is worthwhile to...

Even though Bergeron Wholesale Company is privately held, management has decided that it is worthwhile to have effective internal controls to the extent it is practical in a small company, as a way to reduce the likelihood of error and fraud. They have implemented the following system for acquisitions and payments. Prenumbered purchase orders are approved by the vice president of finance for all purchases, including both tangible and service acquisitions. When goods are received, the goods are counted and...

Question