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Firm A and Firm B are identical except that A is incorporated while B is an unlimited liability partnership. Both have assets worth $500,000 ($500K)
Firm A and Firm B are identical except that A is incorporated while B is an unlimited liability partnership. Both have assets worth $500,000 ($500K) funded with a debt ratio of 40%. Suppose that the assets suddenly become worthless, what is the maximum possible loss to the equityholders of each company?
| Firm A: $200K; Firm B: $300K | |
| Firm A: $300K; Firm B: $500K | |
| Firm A: $500K; Firm B: $500K | |
| Firm A: $500K; Firm B: $200K |
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