Please show work in Excel

24-2 Reorganization.

The Verbrugge Publishing Company's 2019 balance sheet and income statement are as follows (in

millions of dollars):

Balance Sheet

See text.

Questions.

Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share

of the noncallable preferred will be exchanged for 1 share of $2.40 preferred with a par value of $35

plus one 8% subordinated income debenture with a par value of $75. The callable preferred issue will be

retired with cash generated by reducing current assets.

a. Assume that the reorganization takes place and construct the projected balance. Show the new

preferred stock at its par value. What is the value for total assets? For debt? For preferred stock?

b. Construct the projected income statement. What is the income available to common shareholders in

the proposed recapitalization?

c. What were the total cash flows received by the noncallable preferred stockholders prior to the

reorganization? What were the total cash flows to the original noncall-able preferred stockholders after

the reorganization? What was the net income to common stockholders before the reorganization? After

the reorganization.

d. Required pre-tax earnings are defined as the amount that is just large enough to meet fixed charges

(debenture interest and/or preferred dividends). What are the required pre-tax earnings before and

after the recapitalization? e. How is the debt ratio (i.e., liabilities/total assets) affected by the

reorganization? Suppose you treated preferred stock as debt and calculated the resulting debt ratios.

How are these ratios affected? If you were a holder of Verbrugge's common stock, would you vote in

favor of the reorganization? Why or why not?

Reader New Tab + Balance Sheet Current assets $300 Current liabilities $ 40 Net fixed assets 200 Advance payments by customers 80 Noncallable preferred stock, $6 coupon, 110 $110 par value (1,000,000 shares) Callable preferred stock, $10 coupon, no par, 200 $100 call price (200,000 shares) Common stock, $2 par value (5,000,000 shares) 10 Retained earnings 60 Total assets $500 Total liabilities & equity $500 Income Statement Net sales $540 Operating expense 516 Net operating income $ 24 Other income EBT $ 28 Taxes (25%) Z Net income $ 21 Dividends on $6 preferred 6 Dividends on $10 preferred 2 Income available to common stockholders Verbrugge and its creditors have agreed upon a voluntary reorganization plan In this plan. each share of the noncallable preferred will be exchanged for I share of $2:40 preferred with a par value of $35 plus one 8% subordinated income debenture with a par value of $75 5:46 PM 2020/10/06