The Management of Magic Mobile Homes Has Proposed to Reorganize

question 7

Multiple Choice

The management of Magic Mobile Homes has proposed to reorganize the firm. The proposal is based on a going-concern value of $2 million. The proposed financial structure is $750,000 in new mortgage debt, $250,000 in subordinated debt and $1,000,000 in new equity. All creditors, both secured and unsecured, are owed $2.5 million dollars. Secured creditors have a mortgage lien for $1,500,000 on the factory. The corporate tax rate is 34%.
-Refer to the above scenario.How much should the secured creditors receive?

• A)$1,000,000
• B)$1,250,000
• C)$1,333,333
• D)$1,500,000
• E)None of the above.

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