In: Finance
Problem 24-01 Southwestern Wear Inc. has the following balance sheet:
The trustee's costs total $283,750, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received from the sale of the assets? Distribution of proceeds on liquidation:
Distribution to general creditors:
The remaining $ will go to the common stockholders. |
Distribution of proceeds on liquidation:
Distribution to general creditors:
The total amount available for general creditors (2,216,250) is more than the total claim for general creditors (1,875,000) so 100% distribution can happen. Since, notes payable is fully distributed, no subordinate adjustment is required.
Thus, the amount left over for common stockholders = 2,216,250 - 1,875,000 = 341,250