White and Wong, Inc. has had financial difficulty and is being liquidated by the Federal Bankruptcy Court. The firm has a liquidation value of $1,000,000 --- $400,000 from the fixed assets that served as collateral for the mortgage bonds and $600,000 from all other assets (all prior claims have been satisfied). The firm's current capital structure is as follows:
Source of Capital Amount
Unsecured bonds $500,000
Mortgage bonds $400,000
Preferred stock $100,000
Common stock $500,000
The common stockholders will receive __________ in the liquidation?
c) $198,000, or
Answer: the common stockholders will receive $0 in the liquidation
Payments to common stockholders are subordinated to payments to creditors and preferred ...
The solution answers a question regarding a common stock holder's liquidation.