Matmart Corporation is contemplating seeking a voluntary liquidation of the Bankruptcy Reform Act. There are a large number of partially secured creditors who are opposed to the possibility of a liquidation and favor a restructuring of their debt, which will allow the corporation to return to profitability and positive operating cash flows. Values relevant to a possible liquidation are as follows: BookValue EstimatedNet RealizableValue Free assets consisting of cash, receivables, and securities. Inventory Equipment (net) Land. Buildings (net) Goodwill Total assets Accounts payable Note payable Accrued interest on mortgage payable Mortgage payable Unsecured creditors with priority. Total liabilities $ 125,000 420,000 180,000 300,000 1,200,000 300,000 $2,525,000 $ 340,000 600,000 24,000 1,000,000 70,000 $2,034,000 $ 85,000 330,000 120,000 350,000 1,000,000 $1,885,000 Of the net realizable value of inventory, $200,000 is pledged against $250,000 of accounts payable and the balance of the inventory is pledged against the note payable. All of the equipment is pledged against the note payable. The mortgage payable and the related accrued interest is secured by the land and building.1. Determine the dividend to general unsecured creditors and the amount of total consideration that would be received by the holder of the note payable.2. Assume that the holder of the note payable would be agreeable to a restructuring of the note, rather than proceeding with a liquidation of the corporation. In turn, the corporation would be agreeable to quarterly interest and principal payments not to exceed $52,716 and an interest rate of 6%. If the note holder insists on a restructured note with a present value of $80,000 more than what they would receive under a liquidation, determine the minimum term of the restructured note.3. Rather than a liquidation, assume that the mortgage was restructured as follows: 72 monthly payments of $15,195.39, an additional $100,000 payment at the end of month 72, and expensed legal fees of $20,000 associated with the restructuring. Determine the annual implicit interest rate for the restructuring.
Matmart Corporation is contemplating seeking a voluntary liquidation of the Bankruptcy Reform Act. There are a large number of partially secured creditors who are opposed to the possibility of a liquidation and favor a restructuring of their debt, which will allow the corporation to return to profitability and positive operating
| Book Value |
Estimated Net Realizable Value |
|
|
Free assets consisting of cash, receivables, and securities. Inventory Equipment (net) Land. Buildings (net) Total assets Accounts payable Note payable Accrued interest on mortgage payable Mortgage payable Unsecured creditors with priority. Total liabilities |
$ 125,000 420,000 180,000 300,000 1,200,000 300,000 $2,525,000 $ 340,000 600,000 24,000 1,000,000 70,000 $2,034,000 |
$ 85,000 330,000 120,000 350,000 1,000,000
$1,885,000
|
Of the net realizable value of inventory, $200,000 is pledged against $250,000 of accounts payable and the balance of the inventory is pledged against the note payable. All of the equipment is pledged against the note payable. The mortgage payable and the related accrued interest is secured by the land and building.
1. Determine the dividend to general unsecured creditors and the amount of total consideration that would be received by the holder of the note payable.
2. Assume that the holder of the note payable would be agreeable to a restructuring of the note, rather than proceeding with a liquidation of the corporation. In turn, the corporation would be agreeable to quarterly interest and principal payments not to exceed $52,716 and an interest rate of 6%. If the note holder insists on a restructured note with a present value of $80,000 more than what they would receive under a liquidation, determine the minimum term of the restructured note.
3. Rather than a liquidation, assume that the mortgage was restructured as follows: 72 monthly payments of $15,195.39, an additional $100,000 payment at the end of month 72, and expensed legal fees of $20,000 associated with the restructuring. Determine the annual implicit interest rate for the restructuring.
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