Advanced Corporate Finance

$($a$)$ Determine the fair market value of Evergrande$$s equity today

$($b$)$ Determine the fair market value of Evergrande$$s total liabilities today

$($c$)$ What is the market implied interest rate on Evergrande$$s liabilities today?The financial position of Evergrande as at December $31,2020$:

Evergrande is in financial distress and is in default on all interim interest payments due on the total liabilities.

The creditor is assessing the market value of debt and equity.

Assessment of the Market Value of Assets:

The inventory consists of unsold residential units. Given the dismal real estate outlook consequent to the

govemment policy on the purpose of real estate, the inventory could only be liquidated at $40\%$ discount in

book value. Also due to the uncertain pandemic conditions, it is estimated that $75\%$ of the recelvables are to

be written off. The total amount of non$-$current assets can only be liquidated at $60\%$ of book value. The cash

on hand and other current assets, however, can be fully realized in book value terms, that is$,$ their market

value is equal to the book value.

Additional Market Information

The uncertainty of the market value of the total assets compounded by regulatory uncertainty, COVID$-19,$

as well as the fragile economic outlook, is conservatively estimated to be at least $50\%.$

The risk$-$free rate of interest is standing at $3\%$ and is expected to remain constant for the foreseeable

future.

Assessment of the Market Value of Liabilities

Since Evergrande defaults on all its debt payments coming due, the long$-$term debtholders are immediately

calling loans with a $6-$month notice. The total amount concerned is $$443,475$ million. The total amount of

current liabilities, $$1,507,253$ million are due in $6$ months as well. So$,$ the total amount of liabilities due in $6$

months is $$1,950,728$ million.

Based on the market$-$value assessment of Evergrande, the table below presents the corresponding financial

position of Evergrande.