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Foundations Of Financial Management
Found in: Page 538
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.

Assets

Book value

Liquidation value

Accounts receivables

$1,400,000

$1,200,000

Inventory

$1,800,000

$900,000

Machinery and equipment

$1,100,000

$600,000

Building and plant

$4,200,000

$2,500,000

Total assets

$8,500,000

$5,200,000

Liabilities and stockholder’s claims

Liabilities

Accounts payable

$2,800,000

First lien, secured by machinery and equipment

$900,000

Senior unsecured debt

$2,200,000

Subordinated debenture

$1,700,000

Total liabilities

$7,600,000

Stockholder’s claims

Preferred stock

$250,000

Common stock

$650,000

Total stockholder’s claims

$900,000

Total liabilities and stockholder’s claims

$8,500,000

d. After the machinery and equipment are sold to partially cover the first lien secured claim, how much will be available from the remaining asset liquidation values to cover unsatisfied secured claims and unsecured debt?

The asset value left after machinery and equipment is sold to partially cover first lien is $4,200,000.

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Step by Step Solution

Information provided in question

Total liquidation value of assets = $5,200,000

Total liquidation value of liabilities = $7,600,000

Liquidation value of machinery and equipment = $600,000

Liquidation value of asset left after deducting administrative costs = $4,800,000

Calculation of asset value left after deducting liquidation value of first lien machinery and equipment

The asset value left is $4,200,000

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