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Needsalift,Inc.has $10 million in funds to distribute to its unsecured creditors.Two sets of possible claims are presented below.

-For Case I,what settlement will the unsecured bondholders receive?

Question

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Needsalift,Inc.APRs
Needsalift,Inc.has $10 million in funds to distribute to its unsecured creditors.Two sets of possible claims are presented below.
 
-For Case I,what settlement will the unsecured bondholders receive?

Quizplus · Accepted Answer

In Case I, the unsecured bondholders will receive a settlement of $1.43 million. This is because the $10 million funds will first be used to pay off the secured claims of $4.5 million. After that, the remaining funds of $5.5 million will be distributed proportionally among the unsecured creditors. Since the unsecured bondholders have a claim of $15 million (compared to the unsecured trade creditors who have a claim of $35 million), they will receive 15/50 or 3/10 of the remaining funds, which is $1.65 million. However, since there is a cap of $1.43 million on the amount that each unsecured creditor can receive, they will get the lower amount.

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