The Verbrugge Publishing Company’s 2011 balance sheet and income statement are as follows (in millions of dollars) Balance Sheet Current Assets 168 Current Liabilities 42Net Fixed Assets 153 Advance payments 78Goodwill 15 Reserves 6$6 preferred stock, $112.50 par value (1,200,000 shares), 13510.50 preferred stock no par callable at $150 (60,000 shares) 9Common Stock, $1.50 par value (6,000,000 shares) 57Total assets 336 Total claims 336Income Statement Net Sales 540 Operating Expense 516 NOI 24 Other Income 3 EBT 27 Taxes (50%) 13.5 Net Income 13.5 Dividends on $6 preferred 7.2 Dividend on $10.50 preferred 0.6 Income available to common stockholders 5.7 Verbrugee and its shareholders have agreed to a voluntary reorgization plan. In this plan each share of the $6 preferred stock will be exchanged for one share of $2.40 preferred stock with a par value of 37.50 plus one 8% subornidated income debenture with a par value of $75. The 10.50 preferred issue will be retired with cash. A. Construct the projected balance sheet while assuming that reorganization takes place. Show the new preferred stock at par value. B. Constructed the projected income statement. What is the income available to common shareholders in the proposed recapitalization? C. Required earnings is defined as the amount that is just enough to meet charges (debenture interest and/or preferred dividends). What are the required pre-tax earnings after the recapitalization? D. How is the debt ratio affected by the reorganization? If you were a holder of the Verbrugge’s common stock, would you vote in favor of the reorganization?
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