Bram Real Estate Corporation is being liquidated. It has one major asset, an off
ID: 2470542 • Letter: B
Question
Bram Real Estate Corporation is being liquidated. It has one major asset, an office building, which was converted into $16.4 million cash. The stockholders' equity has been wiped out by past losses. The following claims exist: Accounts Payable, $4 million; Debentures Payable, $5 million; and First Mortgage Payable, $11 million. 1. Assume that the debentures arc not subordinated. How much will each class of claimants receive? 2. Suppose the debentures are subordinated. a. How much will each class of claimants receive? b. How much will each class receive if the cash proceeds from the sale of the building amount to only $12.5 million?Explanation / Answer
$ million Total assets 16.4 Account payable 4 Debenture Payable 5 Mortgage payable 11 If debenture are not subordinated Mortgage payable 11 11 Full payment Balance 5.4 Account payable 4 0.444444 1.78 Proportionately Debenture Payable 5 0.555556 2.78 Proportionately 15.56 If debenture are subordinated Account payable 4 Full payment Debenture Payable 1.4 Full payment Mortgage payable 11 Full payment Total 16.4 12.5 total assets Account payable 4 0.44 0.67 Proportionately Debenture Payable 5 0.56 0.83 Proportionately Mortgage payable 11.00 11 Full payment Total 12.50