Aiyah, Inc. recently has had financial difficulty and is being liquidated by the Federal Bankruptcy Court. The firm has a liquidation value of $1,000,000 $400,000 from the fixed assets that served as collateral for the mortgage bonds and $600,000 from all other assets (all prior claims have been satisfied). The firm's current capital structure is as follows: The common stockholders will receive ________ in the liquidation.
A) $500,000
B) $333,333
C) $198,000
D) $0

Question

Aiyah, Inc. recently has had financial difficulty and is being liquidated by the Federal Bankruptcy Court. The firm has a liquidation value of $1,000,000 $400,000 from the fixed assets that served as collateral for the mortgage bonds and $600,000 from all other assets (all prior claims have been satisfied). The firm's current capital structure is as follows:  The common stockholders will receive ________ in the liquidation.
A) $500,000 
B) $333,333 
C) $198,000 
D) $0

Quizplus · Accepted Answer

In the liquidation, common stockholders are the last to receive payment after all other prior claims have been satisfied. Since all prior claims have been satisfied and the liquidation value is only $1,000,000, there is no value left for the common stockholders. Therefore, they will receive $0 in the liquidation.