Welders Supply is reorganizing and has presented a proposal based on a going-concern value of $2 million after reorganization costs and delinquent wages,benefits,and taxes.The proposed financial structure is $750,000 in new mortgage debt,$250,000 in subordinated debt and $1,000,000 in new equity.Secured creditors currently have a mortgage lien for $1.5 million on the factory and the unsecured creditors' claims total $1.2 million.How much of the new debt and equity securities should the secured creditors receive?

Question

Quizplus · Accepted Answer

The total amount of new debt and equity securities is $2 million. The secured creditors currently have a mortgage lien of $1.5 million, so they should receive $1.5 million of the new debt and equity securities. The remaining $500,000 should be divided among the unsecured creditors, who have claims of $1.2 million. Therefore, the secured creditors should receive $1.5 million of the new debt and equity securities. Choice D is the only option that matches this calculation.

Welders Supply Is Reorganizing and Has Presented a Proposal Based