Four years ago, you paid $300,000 for 12.5% of the shares of Orlando Company. The...
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Four years ago, you paid $300,000 for 12.5% of the shares of Orlando Company. The corporation has 7 other shareholders each with a 12.5% equity position in the company. The corporation has grown over the past 3 years and your shares are now worth $600,000. The corporation recently issued bonds in the amount of $2,500,000 to fund an acquisition. The acquisition was a disaster, and the company is now unable to meet its interest commitments and is on the verge of bankruptcy. There are no other debts.
a) As a 12.5% shareholder, what is the maximum potential loss you could have if the company declares bankruptcy?
b) Explain. How would your answer change if the company was a general partnership instead?
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