The Simple Corporation has outstanding obligation to the Complex Corporation of $250. It is year-end and the total cash flow of Simple from all sources is $325. The contingent payoff to the debtholders and the equity shareholders is:
A) $250; $325.
B) $75; $250.
C) $250; $75.
D) $325; $250.

Question

Quizplus · Accepted Answer

The debtholders (Complex Corporation) are paid first, receiving their full obligation of $250. The remaining cash flow ($325 - $250 = $75) is the contingent payoff to the equity shareholders.

The Simple Corporation Has Outstanding Obligation to the Complex Corporation