Conflicts of Interest
Circular File Company has $50 of 1-year debt.
w Why does the equity have any value?
w Shareholders have an option -- they can obtain the
rights to the assets by paying off the $50 debt.
Circular File Company (Market Values)
Net W.C. 20 25 Bonds outstanding
Fixed assets 10 5 Common stock
Total assets 30 30 Total liabilitiesCircular File Company (Market Values)
Net W.C. 20 25 Bonds outstanding
Fixed assets 10 5 Common stock
Total assets 30 30 Total liabilities