Under federal bankruptcy court protection

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The Penn Central Railroad has not paid local taxes since 1969, under federal bankruptcy court protection. Some years later the court required Penn Central to offer municipalities a choice of two payment options to clear this liability. (Penn Central had been absorbed by Conrail, so there were no future tax liabilities involved.). The choices were (a) immediate payment of 90 percent of the total liability (b) immediate payment of 40 percent of the liability, and 20 percent paid at the end of each of the next three years. Assuming a discount rate of 12 percent, which alternative would you recommend the municipalities should choose and why?

Reference no: EM132662242

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