Exhibit 5. Calculation of Additional Fund Needed

	Value
Assets tied directly to Sales	479 724,000
Sales during the last year	504 483,000
Sales during projected year	625 000,000
Capital Intensity Ratio	0,951
The increase in Sales	120 517,000
Spontaneous Liabilities affected by Sales	168 670,000
Spontaneous Liabilities Ratio	0,334
Projected Net Income	-0,209
Retention Ratio	0
AFN	74 308,341

With the lack of creditors’ patient and coming default on gathering loans it means that Coleco has no options to raise these funds, so the company couldn’t maintain the current business activity.

Since Coleco couldn’t go on with the business there are some restructuring options should be considered:

1. Merger with another firm with the hope that there might be some latent value in the company’s assets – such approach is beneficial only when a synergy effect will take place. As it goes from Exhibit 4, since 1986 the value of total liabilities tends to be greater of the total value of assets about more than 15% (by the end of 1987). So no firm will be interested to acquire it.

2. Issue more equity at right market price – the below graph depicts a comparison of Coleco to the S&P 500 over the middle of 1980’s. Coleco depreciated almost 80% over the period (-79,381%), compared to 59,274% growth for the S&P. The stock closely mirrored recessionary pressure of 1987’s autumn, dipping only slightly in price and gaining minimum in March of 1988. Since the value of equity is more than ($84) million, and the company is facing losses in the last two years new equity from outsiders was virtually out of question.

Exhibit 6. Price Performance

3. Renegotiation of debts – the capital structure ratio of Coleco proves that it acquires its assets inefficiently. The debt to equity ratio has had unfavorable impact over the period. Since 1986 Coleco was using more debt than equity with ratios of 1,013 and 1,157. This proves that Coleco is not creditworthy because its overall times interest earned ratio annually came lower over the period. The annual volatility of the 11,25% debenture was 41,1% and the annual volatility of the 14,375% was 43,1%. So under this situation, renegotiation of debt will not be possible to Coleco.

4. Liquidation – is not considered as the last alternative which used in real life. According to multivariate model of Altman Coleco’s Index of bankruptcy values are provided in the table below.

Exhibit 7. Calculation of Altman's z-score model

	1980	1981	1982	1983	1984	1985	1986	1987
Working Capital/Total Assets	0,459	0,414	0,453	0,226	0,209	0,471	0,179	0,044
Retained Earnings/Total Assets	0,165	0,078	0,157	-0,016	-0,205	0,162	-0,188	-0,197
EBIT/Total Assets	0,292	0,135	0,299	-0,052	-0,229	0,233	-0,199	-0,197
Market Value of Equity/Total Liabilities	0,979	0,914	0,480	0,230	0,028	0,347	-0,013	-0,136
Sales/Total assets	2,056	1,791	1,785	1,249	1,992	1,952	0,847	0,942
Index of Bankruptcy	4,388	3,392	3,823	1,465	1,216	3,722	0,134	-0,012

Since the Z-score in 1986 and 1987 is far below from 1,2 the firm has a high probability of being bankrupt. So, if there’s no opportunity to improve Coleco’s financial position and increase earnings liquidation would be an only alternative.