Problem 4 (3 pts) The date is December 31, 2021. Fortran Corp. cannot repay its $300 million in loans, and STD intends to file for bankruptcy in the US. Management has studied the alternatives of (a) Chapter 7; and (b) Chapter 11. Chapter 7: In a Chapter 7, management forecasts that the sale of all of Fortran assets will provide lenders with a present value of $188 million in cash at December 31, 2021. Chapter 11: In a Chapter 11, management will continue to operate the business. Management believes an appropriate WACC for the reorganized STD (after bankruptcy) is 9%. Management projects the following free cash flow for STD in US $ millions. 2023 STD year end Dec 31 Free Cash Flow Sale of STD 2022 10 15 2024 20 200 What is the present value of the lenders' recovery in Chapter11? Show your work. You work for the Bank of America, a Fortran lender. 1. In strict numerical terms, which bankruptcy option is better? Chapter 7 or Chapter 11? 2. You are an executive at Bank of America. Provide the most logical reason for why you would select Chapter 7 for the bank, even though the present value calculation might be different from Chapter 11. 4 Problem 4 (3 pts) The date is December 31, 2021. Fortran Corp. cannot repay its $300 million in loans, and STD intends to file for bankruptcy in the US. Management has studied the alternatives of (a) Chapter 7; and (b) Chapter 11. Chapter 7: In a Chapter 7, management forecasts that the sale of all of Fortran assets will provide lenders with a present value of $188 million in cash at December 31, 2021. Chapter 11: In a Chapter 11, management will continue to operate the business. Management believes an appropriate WACC for the reorganized STD (after bankruptcy) is 9%. Management projects the following free cash flow for STD in US $ millions. 2023 STD year end Dec 31 Free Cash Flow Sale of STD 2022 10 15 2024 20 200 What is the present value of the lenders' recovery in Chapter11? Show your work. You work for the Bank of America, a Fortran lender. 1. In strict numerical terms, which bankruptcy option is better? Chapter 7 or Chapter 11? 2. You are an executive at Bank of America. Provide the most logical reason for why you would select Chapter 7 for the bank, even though the present value calculation might be different from Chapter 11. 4