THE SHOCKING DEMISE OF MR. THORNDIKE
Minicase solution, Chapter 24

Principles of Corporate Finance, 11th Edition

R. A. Brealey, S. C. Myers and F. Allen

After the corpse was removed, police inspectors came to dust the bedroom for fingerprints. Morse knew they would find nothing. He walked down the marble staircase of Rupert Thorndike’s mansion and into the paneled library. He sat at a table in front of the fireplace, scarcely noticing the painting over it, Monet’s portrait of the legendary John D. Thorndike at Giverny. He turned on his laptop computer. Thorndike Oil had three classes of securities outstanding: $250 million of debentures (face value), 30 million shares, and an issue of subordinated convertible notes. Morse had to calculate the change in the value of each security now that Thorndike was gone, and given the now near-certain acquisition of Thorndike Oil by T. Spoone Dickens. Table 1 reports Morse’s results. The notes summarize his reasoning. With Table 1 in hand, it was easy to calculate the increases in value due to the murder and resulting acquisition. Debt increased by 39.5% of face value. Common stock increased by $1.00 per share, and each convertible note increased from 103.95% to 110% of face value (from $1039.50 to $1100 per bond). Morse summed the gains to Doris, John and Patsy (see Table 2). Then he reached for his cell phone and dialed Chief Inspector Spillane.

Thorndike Oil

Table 1

Values of Thorndike Oil Securities Before and After the Murder

| |Before |After |
|Debt |$151.25 million, |$250 million |
| |60.5% of face value