Please show ALL work and formulas
Tundra Tots is being liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets are sold for $25,000,000 and current assets are sold for $18,000,000. All fixed assets are pledged as collateral for mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $500,000. No employee is owed over $2,000.
Sale of current assets 18,000,000 Sale of fixed assets 25,000,000 Trustee costs 500,000 Before Before Default Balance Sheet Default Current Assets 26,000,000 Accounts payable 4,000,000 Net fixed assets 50,000,000 Accrued taxes 90,000 Accrued wages 250,000 Notes payable 1,650,000 Total current liabilities 5,990,000 First-mortgage bonds 18,000,000 Second-mortgage bonds 20,000,000 Debentures 15,000,000 Subordinated debentures 14,000,000 Common stock 2,500,000 Retained earnings 510,000 Total assets 76,000,000 Total claims 76,000,000
a. How much will shareholders receive?
b. How much will mortgage bondholders receive?
c. How much will priority creditors receive? Identify the priority creditors.
Please show ALL work and formulas
Tundra Tots is being liquidated under Chapter 7 of the Bankruptcy Act. Its current balance sheet is shown below. Fixed assets are sold for $25,000,000 and current assets are sold for $18,000,000. All fixed assets are pledged as collateral for mortgage bonds. Subordinated debentures are subordinate only to notes payable. Trustee costs are $500,000. No employee is owed over $2,000.
| Sale of current assets | 18,000,000 | |||
| Sale of fixed assets | 25,000,000 | |||
| Trustee costs | 500,000 | |||
| Before | Before | |||
| Default | Balance Sheet | Default | ||
| Current Assets | 26,000,000 | Accounts payable | 4,000,000 | |
| Net fixed assets | 50,000,000 | Accrued taxes | 90,000 | |
| Accrued wages | 250,000 | |||
| Notes payable | 1,650,000 | |||
| Total current liabilities | 5,990,000 | |||
| First-mortgage bonds | 18,000,000 | |||
| Second-mortgage bonds | 20,000,000 | |||
| Debentures | 15,000,000 | |||
| Subordinated debentures | 14,000,000 | |||
| Common stock | 2,500,000 | |||
| Retained earnings | 510,000 | |||
| Total assets | 76,000,000 | Total claims | 76,000,000 |
a. How much will shareholders receive?
b. How much will mortgage bondholders receive?
c. How much will priority creditors receive? Identify the priority creditors.
Related questions
| 12/8/2012 | ||||||||||
| Chapter: | 24 | |||||||||
| Problem: | 5 | |||||||||
| Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $900 million, while the current assets were sold for another $400 million. Thus, the total proceeds from the liquidation sales were $1,300 million. Trustee's costs amounted to $1 million; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities. Determine the amount available for distribution to all claimants. | ||||||||||
| Balance Sheets (Millions of Dollars) | ||||||||||
| Assets | ||||||||||
| Current assets | $700 | |||||||||
| Net fixed assets | 1,300 | |||||||||
| Total assets | $2,000 | |||||||||
| Liabilities and equity | ||||||||||
| Accounts payable | $80 | |||||||||
| Accrued taxes | 80 | |||||||||
| Accrued wages | 70 | |||||||||
| Notes payable | 400 | |||||||||
| Total current liabilities | $630 | |||||||||
| First-mortgage bondsa | 700 | |||||||||
| Second-mortgage bondsa | 300 | |||||||||
| Debentures | 500 | |||||||||
| Subordinated debenturesb | 200 | |||||||||
| Common stock | 100 | |||||||||
| Retained Earnings | (430) | |||||||||
| Total claims | $2,000 | |||||||||
| a All fixed assets are pledged as collateral to the mortgage bonds. | ||||||||||
| b Subordinated to notes payable only. | ||||||||||
| Other inputs (in thousands of dollars): | ||||||||||
| Proceeds from sale of fixed assets = | $900 | |||||||||
| Proceeds from sale of current assets = | $401 | |||||||||
| Trustee's costs = | $1 | |||||||||
| Total claims (including trustee expenses) | $2,331 | |||||||||
| Total cash from liquidation | $1,301 | |||||||||
| Amount available for distribution to shareholders | $0 | |||||||||
| Initital Distribution to Priority Claimants | ||||||||||
| Priority claims: | ||||||||||
| Trustee's expenses | $1 | |||||||||
| Worker's wages due | $70 | |||||||||
| Government taxes due | $80 | |||||||||
| Distribution to first mortgage (paid from sale of fixed assets) | $700 | |||||||||
| Remaining proceeds from sale of fixed assets after satisfying first mortgage holders | ||||||||||
| $200 | ||||||||||
| Distribution to second mortgage (paid from sale of fixed assets after satisfying first mortgage holders) | ||||||||||
| $200 | ||||||||||
| Remaining proceeds from sale of fixed assets after satisfying first and second mortgage holders | ||||||||||
| $0 | ||||||||||
| Total preliminary distributions to priority claimaints | $1,051 | |||||||||
| Total of satisfied priority claims | $1,051 | |||||||||
| Total unsastified claims from all claimants | $1,280 | |||||||||
| Funds available for distribution to general creditors: | $250 | |||||||||
| Pro rata distribution percentage | 19.5% | |||||||||
| Distributions due to general claims: | Distribution after Subordination Adjustment | |||||||||
| Remaining Unsatisfied Claim | ||||||||||
| Amount of Claim | Pro Rata Distribution | Subordination Adjustment | ||||||||
| Unsatisfied first mortgage | $0 | $0.00 | $0.00 | |||||||
| Unsatisfied second mortgage | $100 | $19.53 | $80.47 | |||||||
| Accounts payable | $80 | $15.63 | $64.38 | |||||||
| Notes payable | $400 | $78.13 | $321.88 | $39.06 | $117.19 | |||||
| Debentures | $500 | $97.66 | $402.34 | |||||||
| Subordinated debentures | $200 | $39.06 | $109.94 | $39.06 | $0.00 | |||||
| Total | $1,280 | $250 | $1,030 | |||||||
| Total distributions (including prior distributions to mortgage holders and subordination adjustment): | ||||||||||
| Percent of Claim Satisfied | ||||||||||
| Total Distribution | Original Claim | |||||||||
| First mortgage | $700.00 | $700 | 100% | |||||||
| Second mortgage | $200.00 | $300 | 67% | |||||||
| Accounts payable | $15.63 | $80 | 20% | |||||||
| Notes payable | $117.19 | $400 | 29% | |||||||
| Debentures | $97.66 | $500 | 20% | |||||||
| Subordinated debentures | $0.00 | $200 | 0% | |||||||
| PLEASE EMAIL ME THE EXCEL STEPS ON HOW YOU GOT THE ANSWERS. MY EMAIL IS ([email protected]) | ||||||||||
You are proposing a new venture, to branch out into animals and cartoon characters but this will require some new equipment and a capital outlay. Pertinent financial information is given below.
BALANCE SHEET
| Cash | 2,000,000 | Accounts Payable and Accruals | 18,000,000 |
| Accounts Receivable | 28,000,000 | Notes Payable | 40,000,000 |
| Inventories | 42,000,000 | Long-Term Debt | 60,000,000 |
| Preferred Stock | 10,000,000 | ||
| Net Fixed Assets | 133,000,000 | Common Equity | 77,000,000 |
| Total Assets | 205,000,000 | Total Claims | 205,000,000 |
� Last year�s sales were $225,000,000.
� The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent annual coupon, and are currently selling for $874.78.
� You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a $3.00 per share flotation cost.
� The company has 10 million shares of common stock outstanding with a currently price of $14.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D0) was $.80. New stock could be sold with 15% flotation costs.
� The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 14 percent. Your stock�s beta is 1.22.
� Stockholders require a risk premium of 5 percent above the return on the firms bonds.
� The firm expects to have additional retained earnings of $10 million in the coming year, and expects depreciation expenses of $35 million.
� Your firm does not use notes payable for long-term financing.
� The firm considers its current market value capital structure to be optimal, and wishes to maintain that structure. (Hint: Examine the market value of the firm�s capital structure, rather than its book value.)
� The firm is currently using its assets at capacity.
� The firm�s management requires a 2 percent adjustment to the cost of capital for risky projects.
� Your firm�s federal + state marginal tax rate is 40%.
� Your firm�s dividend payout ratio is 50 percent, and net profit margin was 8.89 percent.
� The firm has the following investment opportunities currently available in addition to the expansion you are proposing:
| Project | Cost | IRR |
| A | 10,000,000 | 20% |
| B | 20,000,000 | 18% |
| C | 15,000,000 | 14% |
| D | 30,000,000 | 12% |
| E | 25,000,000 | 10% |
Your expansion would consist of a new product introduction (You should label your venture as Project I, for �introduction�). You estimate that your product will have a six-year life span (after all how many people will really buy this stuff), and the equipment used to manufacture the project falls into the MACRS 5-year class. Your venture would require a capital investment of $15,000,000 in equipment, plus $2,000,000 in installation costs. The venture would also result in an increase in accounts receivable and inventories of $4,000,000. At the end of the six-year life span of the venture, you estimate that the equipment could be sold at a $4,000,000 salvage value.
Your venture, which management considers fairly risky, would increase fixed costs by a constant $1,000,000 per year, while the variable costs of the venture would equal 30 percent of revenues. You are projecting that revenues generated by the project would equal $5,000,000 in year 1, $10,000,000 in year 2, $14,000,000 in year 3, $16,000,000 in year 4, $12,000,000 in year 5, and $8,000,000 in year 6.
The following list of steps provides a structure that you should use in analyzing your new venture.
Note: Carry all final calculations to two decimal places.
Find the WACC:
1. Find the costs (rate of return under current market conditions) of the individual capital components:
a. long-term debt (Hint: PV=-$874.78, FV = $1000, PMT=$100, n=15 solve for i)
b. preferred stock
c. retained earnings (avg. of CAPM and bond yield + risk premium approaches)
d. new common stock
2. Compute the value of the long-term elements of the capital structure, and determine the target percentages for the optimal capital structure. (Carry weights to four decimal places. For example: 0.2973 or 29.73%)
Find the Cash Flow from the project:
3. Compute the Year 0 investment for Project I.
4. Compute the annual operating cash flows for years 1-6 of the project.
5. Compute the additional non-operating cash flow at the end of year 6.
Find alternative capital budgeting measures:
6. Compute the IRR and payback period for Project I.
7. Determine your firm�s cost of capital. (Hint this is the WACC plus an adjustment from the write up)
Make Some Decisions:
8. Compute the NPV for Project I. Should management adopt this project based on your analysis? Explain. Would your answer be different if the project were determined to be of average risk? Explain.
9. Indicate which of the other projects (A through E) should be accepted and why.
