Multiple Choice
Firm A and Firm B are identical except that A is incorporated while B is an unlimited liability partnership. Both have assets worth $500,000 ($500K) funded with a debt ratio of 40 percent. Suppose that the assets suddenly become worthless, what is the maximum possible loss to the equityholders of each company?
A) Firm A: $300K; Firm B: $500K
B) Firm A: $200K; Firm B: $300K
C) Firm A: $500K; Firm B: $200K
D) Firm A: $500K; Firm B: $500K
Correct Answer:
Verified
Correct Answer:
Verified
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