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%.

---

Definitions:

Interest Incurred

Interest incurred refers to the cost of borrowing money, which accrues over a period of time and is due for payment.

Equipment Installation

The process of setting up and configuring machinery or equipment for use in its intended operational environment.

Goodwill

An intangible asset that represents the value of a company's brand name, customer relationships, and other non-physical assets that contribute to earnings.

Patent

A legal right granted to an inventor or assignee to exclude others from making, using, or selling an invention for a certain number of years.