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.© BrainMass Inc. brainmass.com June 3, 2020, 8:23 pm ad1c9bdddf
Net benefit from liquidation = $700,000
Cost= $ 400,000
Earnings = $ 150,000
The solution compares the net benefit of reorganization with the net benefit of liquidation.