Titanic Corporation Has Reached Agreement with Its Creditors to Liquidate

Essay

Titanic Corporation has reached agreement with its creditors to liquidate voluntarily its assets and to use the proceeds to pay off as much of its liabilities as possible. The firm anticipates that it will be able to sell off its assets in an orderly fashion, realizing as much as 70% of the book value of its receivables, 40% of its inventory, and 25% of its net fixed assets (excluding land). However, the firm believes that the land on which it is located can be sold for 120% of book value. The firm has legal and professional expenses associated with the liquidation process of $2,900,000. The firm has only common stock outstanding. Estimate the amount of cash that would remain for the firm's common shareholders once all assets have been liquidated.
$\begin{array} { | l | l | l | } \hline \text { Balance Sheet Item } & \text { Bank Value of Atsets } & \text { Liquidetion Value } \\\hline \text { Cash } & \$ 10 & \\\hline \text { Accaunts Receivable } & \$ 20 & \\\hline \text { Invertary } & \$ 15 & \\\hline \begin{array} { l } \text { Net Fixed Assets } \\\text { Excluding Land }\end{array} & { \$ 8 } & \\\hline \text { Land } & \$ 6 & \\\hline \text { Total Assets } & { \$ 5 9 } & \\\hline \text { Tatal Linbilities } & \$ 35 & \\\hline \text { Shareholders Equity } & \$ 24 & \\\hline\end{array}$