Art purchased 2,500 shares of Delta stock. His purchase represents ten percent ownership in the firm. His shares have increased in value from the $12 a share he originally paid to today's market value of $23 share. Assume Delta goes bankrupt and owes $450,000 more in debts than the firm can pay after liquidating all of its assets. What is the maximum loss per share Art will incur on this investment? A. $0 a share B. $12 a share C. $17.50 a share, computed as ($12 + 23)/2 D. $23 a share E. $18 share, computed as (10% × $450,000)/2,500 shares
Purchase price of one share = $12
Since Delta has become bankrupt and even after realising all assets, it still owes $450,000 to debt, hence nothing is left for the shareholders of Delta. Hence, shareholders will not be entitled to any payment at the time of winding up of the company.
Since Art purchased the shares at the price of $12/share, hence maximum loss of Art will be $12/per share.
Hence, correct option is (B) i.e.$12 a share.
Art purchased 2,500 shares of Delta stock. His purchase represents ten percent ownership in the firm....
One year ago, David B. bought 20,000 shares of Nuvo Tech, a publicly listed company, at $50 per share. His purchase represents 20 percent ownership in the firm. If Nuvo Tech is bankrupt and owes $300,000 more in debts than the firm can pay after liquidating all of its assets, what is the maximum loss per share David B. will incur on this investment? (Hint: consider the maximum loss for an equity investor, who invests in the shares of a...