The Management of Magic Mobile Homes Has Proposed to Reorganize

The management of Magic Mobile Homes has proposed to reorganize the firm. The proposal is based on a going-concern value of $2.0 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%. What will the equity holders receive if they had 5 million shares with a par value of $0.50 each?

A) $1,000,000
B) $583,333
C) $35,714
D) $0