Principles of Corporate Finance
Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 24, Problem 9PS
Summary Introduction

To determine: The amount that each security holders receive if the assets are sold and distributed strictly as per precedence.

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In your answers to the following set of questions,assume that Ross Corporation has $200 millionof assets at book value, $150 million of liabilitiesowed to 500 different creditors, and $50 million ofcommon equity book value. Also, assume that Rosshas failed to make timely payments on its debt. The assets are worth less than the $200 millionshown on the balance sheet, although their actualmarket value is uncertain. The company issuedmortgage bonds that are held by public bondholders and are secured by real estate, and 15 differentbanks hold loans secured by all of the company’saccounts receivable, inventories, and equipment.There are also some 250 general (unsecured) creditors, including accounts payable, accrued wagesand taxes, and pension plan obligations. Answerthe following questions:a. Should Ross attempt to resolve its problemsusing informal procedures, or should it file forbankruptcy? Why?
The A&Z Real Estate Co. is to be liquidated. The book value of its assets is $62.0 billion. Bonds with a face value of $39 billion are secured by a mortgage on the company's Toronto and New York buildings. A&Z has subordinated debentures outstanding in the amount of $44.5 billion; shareholders' equity has a book value of $11.5 billion; $12.0 billion 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 $41 billion. Of this amount, $16.5 billion represents the proceeds from the sale of the Toronto and New York buildings. As the trustee in bankruptcy, you wish to follow the bankruptcy law strictly. What is your proposed distribution? (Enter the answers in billions. Do not round the intermediate calculations. Do not leave any empty spaces; input a O wherever it is required. Round the final answers to 1 decimal place. Omit $ sign in your response.) Admin. Costs & other Mortgage bonds…
Baguio Company is experiencing financial difficulty and is renegotiating  debt restructuring with the creditor to relieve its financiaal stress. The entity has P5,000,000 note payable to First Bank. The bank is considering two alternatives. Acceptance of land owned by the entity valued at P4,000,000 and carried at its historical cost of P2,800,000 Acceptance of an equity interest in the entity in the form of 40,000 shares with fair value of P120 per share. The share capital has a par value of P100 per share. Required: Prepare journal entry that Baguio Company would make under each alternative.
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