Ordenado Company is about to emerge from Chapter 11 reorganization. Its assets will be used in operations, and have estimated fair values as follows:
$\begin{array}{lr}
\text { Current assets } & \$ 290,000 \
\text { Buildings and equipment } &\underline{ 3,900,000 }\
\text { Total reported assets } & \$ 4,190,000
\end{array}$
Previously unreported intangible assets have a fair value of $400,000. Operations are expected to generate a net cash flow of $200,000 in the first year following reorganization and growing at a 1% rate in perpetuity. A risk-adjusted discount rate of 5% is deemed appropriate.
Required
a. Calculate Ordenado's reorganization value.
b. Calculate the amount of goodwill, if any, that will be reported on the emerging company's balance sheet.

Question

Ordenado Company is about to emerge from Chapter 11 reorganization. Its assets will be used in operations, and have estimated fair values as follows:
 $\begin{array}{lr}
\text { Current assets } & \$ 290,000 \
\text { Buildings and equipment } &\underline{ 3,900,000 }\
\text { Total reported assets } & \$ 4,190,000
\end{array}$
 Previously unreported intangible assets have a fair value of $400,000. Operations are expected to generate a net cash flow of $200,000 in the first year following reorganization and growing at a 1% rate in perpetuity. A risk-adjusted discount rate of 5% is deemed appropriate.
Required
a. Calculate Ordenado's reorganization value.
b. Calculate the amount of goodwill, if any, that will be reported on the emerging company's balance sheet.

Quizplus · Accepted Answer

The Answer of Ordenado Company is about to emerge from Chapter 11 reorganization. Its assets will be used in operations, and have estimated fair values as follows:
 $\begin{array}{lr}
\text { Current assets } & \$ 290,000 \
\text { Buildings and equipment } &\underline{ 3,900,000 }\
\text { Total reported assets } & \$ 4,190,000
\end{array}$
 Previously unreported intangible assets have a fair value of $400,000. Operations are expected to generate a net cash flow of $200,000 in the first year following reorganization and growing at a 1% rate in perpetuity. A risk-adjusted discount rate of 5% is deemed appropriate.
Required
a. Calculate Ordenado's reorganization value.
b. Calculate the amount of goodwill, if any, that will be reported on the emerging company's balance sheet.

Ordenado Company Is About to Emerge from Chapter 11 Reorganization