CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure

Case: Tara Textiles has total assets of ₹200 crore and total liabilities of ₹150 crore. Its going-concern enterprise value is estimated at ₹120 crore. Liquidation would realise 60% of book asset value, with liquidation costs of ₹10 crore. Secured creditors of ₹80 crore are paid first from proceeds, then unsecured creditors of ₹70 crore share the balance pro rata. What recovery, in rupees crore, would unsecured creditors receive on liquidation?

Unsecured creditors receive ₹30 crore. Liquidation realises ₹120 crore (60% of ₹200 crore); after ₹10 crore costs, ₹110 crore remains. Secured creditors take ₹80 crore first, leaving ₹30 crore against ₹70 crore of unsecured claims.

A₹30 croreCorrect
B₹20 crore
C₹0
D₹40 crore

Explanation

Liquidation proceeds = 60% x 200 = ₹120 crore; less costs ₹10 crore = ₹110 crore. Secured creditors take ₹80 crore, leaving ₹30 crore for unsecured creditors (about 43 paise per rupee). Forgetting the costs gives ₹40 crore.

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