Bram Real Estate Corporation is being liquidated. It has one major asset, an office building, which was

Question:

Bram Real Estate Corporation is being liquidated. It has one major asset, an office building, which was converted into $16.4 million cash. The stockholders’ equity has been wiped out by past losses. The following claims exist: Accounts Payable, $4 million; Debentures Payable, $5 million; and First Mortgage Payable, $11 million.

1. Assume that the debentures are not subordinated. How much will each class of claimants receive?

2. Suppose the debentures are subordinated.

a. How much will each class of claimants receive?

b. How much will each class receive if the cash proceeds from the sale of the building amount to only $12.5 million?

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...