Firm A, under bankruptcy proceedings, has an estimated going-concern reorganization value of $8.0 million. The last pre-bankruptcy balance sheet of the firm is below (this shows the “old” capital structure). Assume that there are no other claims from any party.

LAST PRE-BANKRUPTCY BALANCE SHEET

ASSETS

Current Assets 5,000,000

Fixed Assets 10,000,000

TOTAL ASSETS $15,000,000

LIABILITIES and NET WORTH

Senior Debt 3,000,000

Subordinated Debt 7,000,000

Common Stockholders Equity 5,000,000

TOTAL LIABILITIES and NET WORTH $15,000,000

Assume that the reorganized “new” capital structure must be 40% debt and 60% common equity, with $2,000,000 of the new debt subordinated to senior debt. After the fair distribution of the new securities under the reorganization:

	a.	The “old” Senior Debt of $3,000,000 in the last pre-bankruptcy balance sheet will, after reorganization, received (among others) “new” Subordinated Debt of $2,000,000
	b.	The “old” Common Stockholders Equity of $5,000,000 in the last pre-bankruptcy balance sheet will, after reorganization, receive “new” Common Stockholders Equity of $4,800,000.
	c.	The “old” Subordinated Debt of $7,000,000 in the last pre-bankruptcy balance sheet will, after reorganization, receive (among others) “new” Subordinated Debt of $200,000.
	d.	The “old” Subordinated Debt of $7,000,000 in the last pre-bankruptcy balance sheet will, after reorganization, be fully satisfied.