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Safari File Edit View History Bookmarks Window Help [50% D Fri 1 1:45:29 AM aE Chegg Study Guided Solut.. Chegg Study Guided Solut. l Safari Fie Edit View Histor HW 6 Campus Tutoring Service Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion. Return to question Sludge Corporation has two bonds outstanding, each with a face value of $2.85 million. Bond A is a senior bond; bond B is subordinated. Sludge has suffered a severe downturn in demand, and its assets are now worth only $4.70 million. If the company defaults, what payoff can the holders of bond B expect? (Enter your answer in millions. Round your answer to 2 decimal places.) 9.1 points Answer is complete but not entirely correct. Payoff of bond 1.85 million Prev 11 of 11 Next Hill

Explanation / Answer

Conceptually 1.85 Million is Right

a company has debt A is senior debt $2.85M and debt B is subordinated debt $2.85M .The company's assets are liquidated for $4.70M, it first needs to pay off the $2.85M amount of its senior debt A. The remaining subordinated debt B $1.85 M is only 65% repaid due to the lack of money.

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