Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 24, Problem 1P
Southwestern Wear Inc. has the following
The trustee’s costs total $281,250, and the firm has no accrued taxes or wages. 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 sale of the assets?
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The Southeast Asia Corporation (SAC) is to be liquidated. The market value of its assets is $24 million. Bonds with a face value of $14.6
million are unsecured. SAC has no subordinated debentures outstanding; shareholders' equity has a market value of $4 million;
$930,000 is used to cover administrative costs and other claims (including unpaid wages, pension benefits, legal fees, and taxes).
The company has a liquidating value of $20 million. Of this amount, $12 million represents the proceeds from the sale of their flagship
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As a trustee in bankruptcy, you wish to follow the bankruptcy law strictly. What is your proposed distribution? (Enter your answers in
whole dollars not in millions. Do not round intermediate calculations. Omit $ sign in your response.)
Administrative fees and other claims
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The Morrit Corporation has $1,080,000 of debt outstanding, and it pays an interest rate of 8% annually.
Morrit's annual sales are $6 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If
the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and
bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your
answer to two decimal places.
Bird Enterprises has no debt. Its current total value is $50.8 million. Assume debt
proceeds are used to repurchase equity.
a. Ignoring taxes, what will the company's value be if it sells $20.3 million in debt? (Do
not round intermediate calculations and enter your answer in dollars, not millions of
dollars, round your answer to the nearest whole number, e.g., 1,234,567.)
b. Suppose now that the company's tax rate is 24 percent. What will its overall value be if
it sells $20.3 million in debt? (Do not round intermediate calculations and enter your
answer in dollars, not millions of dollars, rounded to the nearest whole number,
e.g., 1,234,567.)
a. Value of the firm
b. Value of the firm
Chapter 24 Solutions
Financial Management: Theory & Practice
Ch. 24 - Prob. 1QCh. 24 - Why do creditors usually accept a plan for...Ch. 24 - Would it be a sound rule to liquidate whenever the...Ch. 24 - Why do liquidations usually result in losses for...Ch. 24 - Prob. 5QCh. 24 - Southwestern Wear Inc. has the following balance...Ch. 24 - At the time it defaulted on its interest payments...Ch. 24 - Prob. 4PCh. 24 - Prob. 5SPCh. 24 - Prob. 1MC
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