Alpha Manufacturing has a current operating value of $80 million but faces due debt obligations of $95 million. If the company declares bankruptcy, bankruptcy costs would be $15 million, leaving $65 million for creditors. Management proposes a debt-for-equity swap to avoid bankruptcy. What minimum percentage of equity must management offer creditors for a successful workout?

Alpha Manufacturing has a current operating value of $80 million but faces due debt obligations of $95 million. If the company declares bankruptcy, bankruptcy costs would be $15 million, leaving $65 million for creditors. Management proposes a debt-for-equity swap to avoid bankruptcy. What minimum percentage of equity must management offer creditors for a successful workout?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 10P: The Morrit Corporation has $600,000 of debt outstanding, and it pays an interest rate of 8%...

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