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In April 2009, Chrysler LLC filed for bankruptcy


In April 2009, Chrysler LLC filed for bankruptcy. It sold its brands and various other assets to Fiat SpA. The following table lists the estimated recovery value of Chrysler's property, plant, and equipment in the event of liquidation. ASSETS BOOK VALUE RECOVERY VALUE (high estimate) Assembly plants $2,205 million $220 million Stamping plants $1,129 m $226 m Powertrain plants $3,513 m $702 m Tooling $1,337 m $ 67 m (a) Define "specificity" as the ratio of book value less estimated recovery value to book value in percentage terms. [Specificity = (Book - Recovery)/Book}. Calculate the specificity of each category of assets. Explain the relationship between sunk costs and specificity. (b) Stamping equipment is heavy machinery used to produce metal parts such as car bodies. Tooling is equipment designed to produce particular models of cars. Explain why Chrysler's tooling has a higher specificity than the stamping plants.

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