Problem:
The balance sheet of Company X is as follows:
In millions of USD:
Assets
Working capital 20
Investments 10
Total 30
Liabilities
1-year loan 25
Equity 5
Total 30
Which party (shareholders or debtors) wins if Company X:
a.) Distributes $10 million in dividends.
b.) Shuts down and sells its possessions. From working capital we get $20 million, but from investments only $6 million. All proceeds are invested in government loans.
c.) Invests $10 million into a project with an NPV of 0. In the possible case of a bankruptcy the debtors of the new loan have the same "rights" as the of the old one.
d.) The debtors of the 1-year loan decide to extend the pay-back period to two years.