Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization (capitalized) value of $4.0 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 Fixed Assets TOTAL ASSETS $2,000,000 4,000,000 $6,000,000 LIABILITIES and NET WORTH Senior Debt Subordinated Debt Common Stockholders Equity TOTAL LIABILITIES and NET WORTH $2,000,000 3,000,000 1,000,000 $6,000,000 Assume that the reorganized "new" capital structure must be 3/4 debt and 1/4 common equity, with $1,000,000 of the new debt subordinated to senior debt. After the fair distribution of the new securities under the reorganization: O a. The "old" Senior Debt of $2,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Senior Debt of $2,000,000. b. The "old" Common Stockholders Equity of $1,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Common Stockholders Equity of $1,000,000. c. The "old" Subordinated Debt of $3,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Senior Debt of $1,000,000, and "new" Subordinated Debt of $1,000,000. Od. None of the above. Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization (capitalized) value of $4.0 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 Fixed Assets TOTAL ASSETS $2,000,000 4,000,000 $6,000,000 LIABILITIES and NET WORTH Senior Debt Subordinated Debt Common Stockholders Equity TOTAL LIABILITIES and NET WORTH $2,000,000 3,000,000 1,000,000 $6,000,000 Assume that the reorganized "new" capital structure must be 3/4 debt and 1/4 common equity, with $1,000,000 of the new debt subordinated to senior debt. After the fair distribution of the new securities under the reorganization: O a. The "old" Senior Debt of $2,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Senior Debt of $2,000,000. b. The "old" Common Stockholders Equity of $1,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Common Stockholders Equity of $1,000,000. c. The "old" Subordinated Debt of $3,000,000 in the last pre-bankruptcy balance sheet will after the reorganization end up with "new" Senior Debt of $1,000,000, and "new" Subordinated Debt of $1,000,000. Od. None of the above
