Magic Mobile Homes Is to Be Liquidated

Magic Mobile Homes is to be liquidated. All creditors,both secured and unsecured,are owed $2 million. Administrative costs of liquidation and wage payments are expected to be $500,000. A sale of assets is expected to bring $1.8 million after taxes. Secured creditors have a mortgage lien for $1,200,000 on the factory which will be liquidated for $900,000 out of the sale proceeds. The corporate tax rate is 34%. How much and what percentage of their claim will the unsecured creditors receive,in total?

A) $100,000; 12.50%
B) $290,909; 36.36%
C) $300,000; 37.50%
D) $600,000; 75.00%
E) Not enough information to answer

Correct Answer:

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