The Splitz Corporation Has Borrowed $5 Million in Debt with a Promise

question 25

Multiple Choice

The Splitz Corporation has borrowed $5 million in debt with a promise to repay $5.5 million in one year. The corporation had 10 million shares outstanding worth $2 each at the time of the borrowing. Splitz earns $6 million during the year. What is the debtholder's contingent claim; how much do the debtholders receive; and, how much do the equity holders receive?

• A) 5.5; 6; 20.
• B) 5; 5.5; 0.
• C) 5; 5.5; 20.
• D) 5.5; 5.5;.5.

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