Question

Currie & Associates Inc. was a mid-size company that was started five years ago by Arthur Currie with the support of four private investors. They initially invested $372,000 each for a total of $1,488,000 and took back 15,000 common shares. The company also issued $1,980,000 in preferred shares and secured a long-term loan for $496,000. The company had a few successful years; however, it succumbed to competition and it eventually ran out of funding. There are no dividends in arrears on the preferred shares. The company did successfully develop several products that it patented and it acquired assets to manufacture those products—all of which still have value. The shareholders are planning an organized windup of the company and plan to sell all the assets at an auction. A summary of the company’s statement of financial position is as follows: CURRIE & ASSOCIATES INC. Statement of Financial Position as at June 30, 2020 Total assets $4,799,000 Total liabilities (including long-term debt) 546,000 Preferred shares 1,980,000 Common shares 1,488,000 Retained earnings 785,000 Total liabilities and equity $4,799,000

How much will each group of shareholders receive on the windup if Currie & Associates is able to sell its assets for: i. $1,706,000? ii. $4,799,000? iii. $5,956,000? If assets sold for (i) $1,706,000 (ii) $4,799,000 (iii) $5,956,000 Preferred shareholders’ entitlement Common shareholders’ entitlement $ $ $

What is the return to the common shareholders on windup for each of the three value scenarios in part “a” if dividends on common shares were never paid? (i) (ii) (iii) The windup return would be samehigherlower samehigherlower samehigherlower

Answer 1

	(i)	(ii)	(iii)
If the assets sold for	17,06,000	47,99,000	59,56,000
+ Retained Earnings	7,85,000	7,85,000	7,85,000
	24,91,000	55,84,000	67,41,000
- Long Term Debt	5,46,000	5,46,000	5,46,000
	19,45,000	50,38,000	61,95,000
- Preferance Shareholders' Entitlement	19,80,000	19,80,000	19,80,000
Common Shareholders' Entitlement	-	30,58,000	42,15,000