Question

In a bankruptcy liquidation, $75 million is recovered in court-ordered asset sales. The company has $60 million of outstanding debt, $3 million of accumulated unpaid interest, $4 million of accrued employee wages, $2 million of preferred stock, $7 million of accounts payable and 2 million shares of common stock outstanding. In theory, how much is each share worth in recovery?

Answer 1

Given information

Proceeds from Court ordered asset sales - $75Million

Outstanding Debt - $60 Million

Accumulated Unpaid interest - $3Million

Accrued employee wages- $4 Million

Preferred Stock - $2Million

Accounts Payable - $7Millions

Common shares - 2 Millions

Computation of each share worth recovery

Assets Sales proceeds - $75 M

Outstanding Debt - ($60 M)

Accumulated Unpaid Interest - ($3M)

Accrued employee wages - ($4M)

Accounts Payable - ($7M)

Prefered Stock - ($2M)

Balance for Common stock - ($1M)

There is no balance to distribute to common stock holders.

Hence the value of the each share worth in recovery is ZERO after Prefered stock.

Note:

Common stockholders are last in line when it comes to company assets, which means they will be paid out after creditors, bondholders, and preferred shareholders.