Question 5. (20 points) Kemper Company's balance sheet and income statement are shown below (in millions of dollars). The company and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $5 preferred will be exchanged for one share of $1.00 preferred with a par value of $25 plus one 9% subordinated income debenture with a par value of $75. The $9 preferred issue will be retired with cash. The company's tax rate is 30 percent.

Balance Sheet prior to Reorganization (in millions
Current Assets	400		Current liabilities	350
Net fixed assets	450		Advance payments	20
			$5 preferred stock, $100 par value (1,000,000) shares	100
			$9 preferred stock, no par, callable at 100 (160,000 shares)	30
			Common stock, $0.10 par value (10,000,000) shares	50
			Retained earnings	300
Total assets	850		Total claims	850

a. Construct the pro forma balance sheet after reorganization takes place. Show the new preferred at its par value.

b. Construct the pro forma income statement after reorganization takes place. How does the recapitalization affect net income available to common stockholders?