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    Reorganization & Liquidation-Bankruptcy & Financial Distress

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    A business can be liquidated for $700,000, or it can be reorganized. Reorganization would require an investment of $400,000. If the company is reorganized, earnings are projects to be $150,000 per year, and the company would trade at a price/earnings ratio 8.0 times. Should the company be liquidated or reorganized.

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    Solution Preview

    Net benefit from liquidation = $700,000

    Cost= $ 400,000
    Earnings = $ 150,000
    P/E ...

    Solution Summary

    The solution compares the net benefit of reorganization with the net benefit of liquidation.