A’isha A.

Fajardo
FINMAN
April 10, 2019

Magic Mobile Homes is to be liquidated. All creditors, both secured and unsecured, are owed
Php2 million. Administrative costs of liquidation and wage payments are expected to be
Php500,000. A sale of assets is expected to bring Php1.8 million after taxes. Secured creditors
have a mortgage lien for Pho1,200,000 on the factory which will be liquidated for Php900,000
out of the sale proceeds. The corporate tax rate is 34%.

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

Mortgage unsecured = 1,200,000 - 900,000 = 300,000.

Net proceeds remaining = Sales Value of asset - Administrative Cost - Secured Creditors

= 18 00 000- 5,00,000 - 900,000 = 400,000.

Unsecured received = (800,000/1,100,000) (400,000) = 290,909.09

% Received = 209,909.09 / 800,000 = 36.36%.

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

Mortgage unsecured payment = (300,000/1,100,000) (400,000) = 109,091

Total Mortgage proceeds = 900,000 + 109091 = 10091091

% received = 1009091/1200000 = 84.1%

The management of Patricia's Paddle Boats has proposed to reorganize the firm. The
proposal is based on a going-concern value of Php2,100,000. The proposed financial
structure is Php1,000,000 in new mortgage debt, Php100,000 in subordinated debt and
Php1,000,000 in new equity. All creditors, both secured and unsecured, are owed
Php2,500,000. Secured creditors have a mortgage lien for Php1,300,000 on the factory. The
corporate tax rate is 34%.

3. How much should the secured creditors receive?

= 1,300,000

4. How much should the unsecured creditors receive?

= 2,100,000 – 1,300,000
= 800,000

5. What will the equity holders receive?

= 1,000,000
A’isha A. Fajardo
FINMAN
April 10, 2019

6. The Holly Corporation has a new rights offering that allows you to buy one share of stock
with 4 rights and Php25 per share. The stock is now selling ex-rights for Php30. What is
the price rights-on?

= (30-25)/4
= Php 31.25

7. Bradley Power wants to raise Php40 million in new equity. The subscription price is
Php25. There are currently 5 million shares outstanding, each with 1 right. How many
rights are needed to purchase 1 share?

Number of shares needed = 40,000,000/25

= 1,600,000

Number of rights issued = 5,000,000 x 1

= 5,000,000

Rights issued for new share = 5,000,000 / 1,600,000

= 3.125

8. Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the
current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of
stock outstanding at a market price of Php20 a share. Firm B has 1,800 shares
outstanding at a price of Php15 a share. What is the value per share of the merged firm?

Value per share = (2300 x 20 + 1800 x 15) / (2300 + 1800 x 15 / 20)

= 20

9. Firm V was worth Php450 and Firm A had a market value of Php375. Firm V acquired
Firm A for Php425 because they thought the combination of the new Firm VA was worth
Php925. What is the synergy from the merger of Firm V and Firm A?

Merger premium = 925 – (450 + 375)

= 100

10. The Wordsmith Corporation has 10,000 shares outstanding at Php30 each. They expect
to raise Php150,000 by a rights offering with a subscription price of Php25. How many
rights must you turn in to get a new share?

Total Outstanding Share Capital = 30 x 10,000

= 300,000

Number of Shares to be issued = 150,000/25

= 6,000

Rights must you turn in to get a new share = 6,000 / 10,000

= 0.60