At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet (in thousands of dollars). The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000. Thus, the total proceeds from the liquidation sales were $600,000. Trustee's costs amounted to $50,000; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities. (see attachment)

 At the time it defaulted on its interest payments and filed for bankruptcy, the McDaniel Mining Company had the following balance sheet (in thousands of dollars).  The court, after trying unsuccessfully to reorganize the firm, decided that the only recourse was liquidation under Chapter 7.  Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in $400,000, while the current assets were sold for another $200,000.  Thus, the total proceeds from the liquidation sales were $600,000.  Trustee's costs amounted to $50,000; no single worker was due more than $2,000 in wages; and there were no unfunded pension plan liabilities.

 

Current assets                                  $400

Net fixed assets                                600

Total assets                                       $1,000

                                                             

Liabilities and equity                                       

Accounts payable                              $50

Accrued taxes                                                40

Accrued wages                                  30

Notes payable                                                180

   Total current liabilities                     $300

First-mortgage bondsa                       300

Second-mortgage bondsa                 200

Debentures                                         200

Subordinated debenturesb                 100

Common stock                                  50

Retained Earnings                              (150)

Total claims                                        $1,000 

 

a.How much will McDaniel’s shareholders receive from the liquidation?

b. How much will the mortgage bondholders receive?

c. Who are the other priority claimants (in addition to the mortgage bondholders)? How much will they receive from the liquidation?

d. Who are the remaining general creditors? How much will each receive from the distribution before subordination adjustment?  What is the effect of adjusting for subordination?

 

 

    • 9 years ago
    McDaniel Mining Company
    NOT RATED

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