Taggart Transcontinental Has a Value of $500 Million If It

question 6

Multiple Choice

Taggart Transcontinental has a value of $500 million if it continues to operate,but has outstanding debt of $600 million.If Taggart declares bankruptcy,bankruptcy costs will equal $50 million,and the remaining $450 million will go to creditors.Instead of declaring bankruptcy,Taggart proposes to exchange the firm's debt for a fraction of its equity in a workout.The minimum fraction of the firm's equity that Taggart would need to offer to its creditors for the workout to be successful is closest to:

• A)50%.
• B)75%.
• C)83%.
• D)90%.

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Definitions:

Slope

is a measure of the steepness or inclination of a line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.

Positive

Expressing or implying affirmation, agreement, or permission; in economics, may refer to aspects such as positive externalities or positive growth rates.

Decreasing

Refers to a situation where a quantity or level is going down or diminishing over time.

Positive

A term often used in economics and finance to denote values or changes that signify growth, improvement, or gains.