Milonas Mining Has $30 Million in Land Value and $15

question 4

Essay

Milonas Mining has $30 million in land value and $15 in mortgage bonds issued on the property. Given that the indenture does not limit the amount of additional bonds that can be issued, the company issues an additional $10 million in mortgage bonds against the property. If Milonas is forced to liquidate its property for $20 million, and the company has no other assets, how much will the original bondholders receive?

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Definitions:

Security Interest

A legal claim or lien on collateral that gives a lender the right to repossession if the borrower defaults on the agreement.

Legal Enforceability

The characteristic of a contract or agreement that allows it to be upheld or compelled by law.

Perfection

The state of being free from all flaws or defects, or achieving the highest degree of excellence.

Balloon-Payment Mortgage

A mortgage that has relatively low fixed payments during the life of the mortgage followed by one large final (balloon) payment.