15. The Hamilton Corp. has 35,000 shares of common stock outstanding with a book value of $20 per share. It owes creditors $1.5 million at an interest rate of 12%.

Selected financial results are as follows.

Restructure the financial line items shown assuming a composition in which creditors agree to convert two-thirds of their debt into equity at book value.
Assume Hamilton will pay tax at a rate of 15% on income after the restructuring, and that principal repayments are reduced proportionately with debt. Who will control the company, and by how big a margin after the restructuring?

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Income and Cash Flow EBIT Interest EBT Tax $ 80,000 Debt Capital $1,500,000 180,000 Equity 700,000 $(100,000) $2,200,000 0 EAT $(100,000) Depreciation 50,000 Principal repayment (75,000) Cash flow $(125,000)