The management of Patricia\'s Paddle Boats has proposed to reorganize the firm.
ID: 2769804 • Letter: T
Question
The management of Patricia's Paddle Boats has proposed to reorganize the firm. The proposal is based on a going-concern value of $2,100,000. The proposed financial structure is $1,000,000 in new mortgage debt, $100,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2,500,000. Secured creditors have a mortgage lien for $1,300,000 on the factory. The corporate tax rate is 34%.
What will the equityholders receive if they had 5 million shares with a par value of $0.50 each?
Explanation / Answer
Answer: $0
Because Receive last in priority. Nothing left, therefore $0
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