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:

Specific Performance

An equitable remedy of the court that may be granted for breach of contract where money damages would be inadequate, and that requires the defendant to carry out the agreement according to its terms.

Possession

The state or fact of owning or having control over something, either physically or legally.

Full Payment

The complete settlement of an amount due, leaving no balance.

Assignment

The transfer of a debtor’s property to an Official Receiver under a voluntary assignment in bankruptcy.