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 of Steel Pony is $4.0 million.The senior debt claim is on all fixed assets.The balance sheet of the firm is as shown:
$$\begin{array} { l l l r }
\text { Current Assets } & \$ 1,100,000 & \text { Senior Debt } & \$ 2,200,000 \
\text { Fixed Assets } & \$ 2,900,000 & \text { Subordinated Debt } & \$ 3,200,000 \
& & \text { Stockholders Equity } & \$ - 2,000,000
\end{array}$$ 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 amount to 5% of the total going concern value, determine the distribution of the proceeds under the rules of absolute priority.

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 of Steel Pony is $4.0 million.The senior debt claim is on all fixed assets.The balance sheet of the firm is as shown:
$$\begin{array} { l l l r } 
\text { Current Assets } & \$ 1,100,000 & \text { Senior Debt } & \$ 2,200,000 \
\text { Fixed Assets } & \$ 2,900,000 & \text { Subordinated Debt } & \$ 3,200,000 \
& & \text { Stockholders Equity } & \$ - 2,000,000
\end{array}$$ 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 amount to 5% of the total going concern value, determine the distribution of the proceeds under the rules of absolute priority.

Quizplus · Accepted Answer

The Answer of 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 of Steel Pony is $4.0 million.The senior debt claim is on all fixed assets.The balance sheet of the firm is as shown:
$$\begin{array} { l l l r } 
\text { Current Assets } & \$ 1,100,000 & \text { Senior Debt } & \$ 2,200,000 \
\text { Fixed Assets } & \$ 2,900,000 & \text { Subordinated Debt } & \$ 3,200,000 \
& & \text { Stockholders Equity } & \$ - 2,000,000
\end{array}$$ 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 amount to 5% of the total going concern value, determine the distribution of the proceeds under the rules of absolute priority.

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