Question

Suppose I’m a limited partner in a partnership company. The total asset is $8000 while the total debt is $6000. And my share in this firm is 30%. Other partners are general partners.

a. What is the value of the equity for this firm?

b. Now the market value of the total asset decreased to $6000. If the firm is going to bankruptcy, how much money I will lose due to this firm? How much money other partners will lose due to this firm?

c. If the firm is considering investing in a project which I’m familiar with, can I participate in the operation of this investment of the firm? Why?

d. If one of these general partners bought a laptop with a firm’s cash without telling others, it costs the firm $2000. After that, the board built up a monitoring system. It costs the firm $3000. What is the name of this kind of problem? How much is the cost related to this problem?

Answer 1

a. Assets = Equity + Liability

Equity = Assets - liabilities = 8000-6000 = $2000

b. as the assets = liabilities, equity becomes zero.

Thus you will lose all the equity

Your share in equity = 30%*2000 = $600 is the amount that you will lose

c. As you hold 30% of the total equity and you are the partner in the firm, you have a right to participate in every operation of the firm. hence you can participate in the investment decision

d. The problem is called as Disagreement problem.

The cost related to the problem is $ 3000