A public firm is facing financial distress. The firm has a 20 million loan due at the
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A public firm is facing financial distress. The firm has a £20 million loan due at the end of the year. The company’s assets currently have a market value of only £15 million including £2 million in cash.
The firm is considering two possible alternative uses for this cash. One possibility is to pay the £2 million out to shareholders in the form of a special cash dividend at the end of the year. The second possibility is to invest the £2 million into a project that offers a £4 million cash inflow at the end of the year.
Which alternative would equity holders prefer, and which alternative would debt holders prefer? Explain your answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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