1. Which one of the following claims on a firm would be paid first in a bankruptcy liquidation if the court adheres to the absolute priority rule?
a. Government tax claims
b. Wages, salaries, and commissions
c. Consumer claims
d. Preferred stockholder dividends
e. Contributions to employee benefit plans
2. Cool Refreshments has bonds outstanding with a face value of $140,000 that are selling at par. It also has 15,000 shares of stock outstanding that are selling for $19.80 a share. The all-equity value of the firm is $395,000. The tax rate is 34 percent. What is the value of the financial distress costs? Assume there are no other claims on the firm.
$5,600
$4,800
$6,200
$5,100
$6,500