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Troubled+Debt+Restructuring+Decision+Tree

Troubled+Debt+Restructuring+Decision+Tree - Troubled Debt...

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Troubled Debt Restructuring Decision Tree FOR EXAM 1, YOU ARE ONLY RESPONSIBLE FOR DEBTOR ! (1) Settlement Assets o Debtor Gain on disposal = FV of asset given – Cost of asset Gain on restructuring = CV – FV of asset given CV = old principal + any interest owed o Creditor Loss on restructuring = CV – FV of asset received Stock o Debtor Gain on restructuring = CV – FV of stock given FV = number of shares x market price o Creditor Loss on restructuring = CV – FV of stock received (2) Modification of Terms Debtor o CV = old principal + any interest owed o Undiscounted future payments = new principal (if different) + undiscounted future interest payments (calculated by new stated interest rate times new principal times number of payments remaining) o If CV < undiscounted future payments NO GAIN Find new effective interest rate (I/Y) N = years left until new maturity PV = negative current CV (includes any interest owed)
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