mcdaniel mining company | Business & Finance homework help

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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 All fixed assets are pledged as collateral to the mortgage bonds.

 

b Subordinated to notes payable only.

   

 

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?