Question

Problem 24-01
Liquidation

Southwestern Wear Inc. has the following balance sheet:

Current assets	$1,875,000		Accounts payable	$375,000
Fixed assets	1,875,000		Notes payable	750,000
			Subordinated debentures	750,000
			Total debt	$1,875,000
			Common equity	1,875,000
Total assets	$3,750,000		Total liabilities and equity	$3,750,000

The trustee's costs total $280,250, 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 $3.5 million is received from sale of the assets?

Distribution of proceeds on liquidation:

1. Proceeds from sale of assets	$
2. First mortgage, paid from sale of assets	$
3. Fees and expenses of administration of bankruptcy	$
4. Wages due workers earned within 3 months prior to filing of bankruptcy petition	$
5. Taxes	$
6. Unfunded pension liabilities	$
7. Available to general creditors	$

Distribution to general creditors:

Claims of General Creditors	Claim (1)	Application of 100% Distribution (2)	After Subordination Adjustment (3)	Percentage of Original Claims Received (4)
Notes payable	$	$	$	%
Accounts payable	$	$	$	%
Subordinated debentures	$	$	$	%
Total	$	$	$

The remaining $_________ will go to the common stockholders.

Answer 1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

© V D C Ax 2 - ENG 07:54 = _29-03-2020 25 DT79 X fc DO DP DO DR DS | DE D U DV DVA 56 57 58 step 1 59 3500000 60 61 280250 62 less less less less less less Distribution of proceeds on liquidation Proceeds from sale of assets First mortgage, paid from sale of assets Fees and expenses of administration of bankruptcy Wages due workers earned within 3 months prior to filing of bankruptcy petition Taxes Unfunded pension liabilities Available to general creditors 63 64 65 3219750 step2 Distribtution to general creditors 69 70 71 claims of general creditors notes payable accounts payable subordinated debentures Application of 100% distribution 750000 375000 750000 1875000 Claim 750000 375000 750000 1875000 After subordination % of original adjustment claims received 750000 100% 375000 100% 750000 100% 1875000 72 73 74 75 76 77 78 answer the remaining amount will go to common shareholders = 3219750 - 1875000 = 1344750 ... MARGIN MONEYmarginal tax PB ROPI APV ROSS price quote LEVERAGED BUY SWAP Sheet2 distress BRIGHAN EVA MVA CAP GAIN S... + 7