Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecure

Question

Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecured, are owed $2 million. Administrative costs of liquidation and wage payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%.

How much and what percentage of their claim will the unsecured creditors receive, in total?

$100,000; 12.50%

$290,909; 36.36%

$300,000; 37.50%

$600,000; 75.00%

Not enough information to answer

Explanation / Answer

Mortgage unsecured = $1,200,000 - $900,000 = $300,000. Net proceeds remaining = $1,800,000 - $900,000 - $500,000 = $400,000. Unsecured received = ($800,000/$1,100,000)($400,000) = $290,909.09. % Received = $209,909.09 / $800,000 = 36.36%

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