The Steel Pony Company,a maker of all-terrain recreational vehicles,is having financial difficulties due to high interest payments.The estimated "going concern" value if Steel Pony is €4.0 million.The senior debt claim is on all fixed assets.The balance sheet of the firm is as shown:
$\begin{array}{|l|l|l|l|}
\hline \text { Cuxent Assets } & € 1,100,000 & \text { Senior Debt } & € 2,200,000 \
\hline \text { Fixed Assets } & € 2,900,000 & \text { Subordinated Debt } & € 3,200,000 \
\hline & & \text { Equityholders Equity } & €-2,000,000 \
\hline
\end{array}$

Question

The Steel Pony Company,a maker of all-terrain recreational vehicles,is having financial difficulties due to high interest payments.The estimated "going concern" value if Steel Pony is €4.0 million.The senior debt claim is on all fixed assets.The balance sheet of the firm is as shown:
 $\begin{array}{|l|l|l|l|}
\hline \text { Cuxent Assets } & € 1,100,000 & \text { Senior Debt } & € 2,200,000 \
\hline \text { Fixed Assets } & € 2,900,000 & \text { Subordinated Debt } & € 3,200,000 \
\hline & & \text { Equityholders Equity } & €-2,000,000 \
\hline
\end{array}$

Quizplus · Accepted Answer

The Answer is If Steel Pony decides to file for formal bankruptcy and expects to sell the firm for the "going concern" value and pay administrative fees which amounts to 5% of the total going concern value,determine the distribution of the proceeds under the rules of absolute priority. Administrative expenses .05(€4,000,000)= €200,000 Senior (secured)debt = €2,200,000 Subordinate debt = €4,000,000 - €200,000 - €2,200,000 = €1,600,000 Equityholders = €0

The Steel Pony Company,a Maker of All-Terrain Recreational Vehicles,is Having