Problem:
Southwestern Wear Inc. has the following balance sheet:
Current assets $1,875,000 Accounts payable $375,000
Fixed Assets 1,875,000 Notes Payable 750,000
Subordinated debentures 750,000
Total debt 1,875,000
Common Equity 1,875,000
Total Assets 3,750,000 Total liabilities and equity $3,750,000
The trustees cost total $281,250 and the firm has no accrued taxes or wages. The debentures are subordinated only to the notes payable.
If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received form sale of the assets?