Reorganization The Verbrugge Publishing Company's 2019 balance sheet and income statement are as follows (in millions of dollars) Balance Sheet Current assets $300 Current liabilities $ 40 Net fixed assets 200 Advance payments by customers 80 Noncallable preferred stock, $6 coupon, $110 par value (1,000,000 shares) 110 Callable preferred stock, $10 coupon, no par, $100 call price (2,000,000 shares) 200 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 inome $ 24 Other income 4 EBT $ 28 Taxes (25 ) 7 Net income $ 21 Dividends on $6 preferred 6 Dividends on $10 preferred 2 Income available to common stockholders $ 13 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 30 preferred with a par value of $37 plus one 10 subordinated income debenture with a par value of $73 The callable preferred issue will be retired with cash generated by reducing current assets 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 preferred stock Enter your answers in millions For example, an answer of $1 million should be entered as 1, not 1,000,000 Round your answers to the nearest whole number The projected balance sheet (in millions of dollars) follows Current assets $ Current liabilities $ Net fixed assets $ Advance payments by customers $ Subordinated debentures $ $2 30 preferred stock, $37 par value (1,000,000 shares) $ Common stock, $2 par value (5,000,000 shares) $ Retained earnings $ Total assets $ Total liabilities equity $ What is the value for debt (i e , liabilities) Do not treat preferred stock as debt Enter your answer in millions For example, an answer of $1 million should be entered as 1, not 1,000,000 Round your answer to the nearest whole number $ million Construct the projected income statement What is the income available to common shareholders in the proposed recapitalization Do not round intermediate calculations Enter your answers in millions For example, an answer of $1 23 million should be entered as 1 23, not 1,230,000 Round your answers to two decimal places The projected income statement (in millions of dollars) follows Net sales $ Operating expense $ Net operating income $ Other income $ EBIT $ Interest $ EBT $ Taxes (25 ) $ Net income $ Dividends on $2 30 preferred $ Income available to common stockholders $ 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 noncallable preferred stockholders after the reorganization Do not round intermediate calculations Enter your answers in millions For example, an answer of $1 23 million should be entered as 1 23, not 1,230,000 Round your answers to two decimal places Total cash flow to noncallable preferred stockholders before recapitalization $ million Total cash flow to noncallable preferred stockholders after recapitalization $ million What was the net income to common stockholders before the reorganization After the reorganization Do not round intermediate calculations Enter your answers in millions For example, an answer of $1 23 million should be entered as 1 23, not 1,230,000 Round your answers to two decimal places Net income to common stockholders before recapitalization $ million Net income to common stockholders after recapitalization $ million 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 Do not round intermediate calculations Enter your answers in millions For example, an answer of $1 23 million should be entered as 1 23, not 1,230,000 Round your answers to two decimal places Required pre tax earnings before recapitalization $ million Required pre tax earnings after recapitalization $ million How is the debt ratio (i e , liabilities total assets) affected by the reorganization Round your answers to two decimal places Debt ratio before reorganization Debt ratio after reorganization Suppose you treated preferred stock as debt and calculated the resulting debt ratios How are these ratios affected Debt ratio before reorganization Debt ratio after reorganization If you were a holder of Verbrugge's common stock, would you vote in favor of the reorganization Why or why not Select YesNoItem 33 , because (1) earnings to shareholders are Select increaseddecreasedItem 34 , (2) earnings required to cover fixed charges (including preferred dividends) are Select increaseddecreasedItem 35 , and (3) income debentures are Select lessmoreItem 36 risky to the shareholders than preferred stock

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 23, 2024

Reorganization The Verbrugge Publishing Company's 2019 balance sheet and income statement are as follows (in millions of dollars). Balance Sheet Current assets $300 Current liabilities

Reorganization

The Verbrugge Publishing Company's 2019 balance sheet and income statement are as follows (in millions of dollars).

Balance Sheet
Current assets	$300	Current liabilities	$	40
Net fixed assets	200	Advance payments by customers	80
		Noncallable preferred stock, $6 coupon, $110 par value (1,000,000 shares)	110
		Callable preferred stock, $10 coupon, no par, $100 call price (2,000,000 shares)	200
		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 inome	$	24
Other income		4
EBT	$	28
Taxes (25%)		7
Net income	$	21
Dividends on $6 preferred		6
Dividends on $10 preferred		2
Income available to common stockholders	$	13

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 $2.30 preferred with a par value of $37 plus one 10% subordinated income debenture with a par value of $73. The callable preferred issue will be retired with cash generated by reducing current assets.

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 preferred stock? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

The projected balance sheet (in millions of dollars) follows:

Current assets	$	Current liabilities	$
Net fixed assets	$	Advance payments by customers	$
		Subordinated debentures	$
		$2.30 preferred stock, $37 par value (1,000,000 shares)	$
		Common stock, $2 par value (5,000,000 shares)	$
		Retained earnings	$
Total assets	$	Total liabilities & equity	$

What is the value for debt (i.e., liabilities)? Do not treat preferred stock as debt. Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

$ million

Construct the projected income statement. What is the income available to common shareholders in the proposed recapitalization? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places.

The projected income statement (in millions of dollars) follows:

Net sales	$
Operating expense	$
Net operating income	$
Other income	$
EBIT	$
Interest	$
EBT	$
Taxes (25%)	$
Net income	$
Dividends on $2.30 preferred	$
Income available to common stockholders	$

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 noncallable preferred stockholders after the reorganization? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places.
Total cash flow to noncallable preferred stockholders before recapitalization: $ million

Total cash flow to noncallable preferred stockholders after recapitalization: $ million

What was the net income to common stockholders before the reorganization? After the reorganization. Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places.

Net income to common stockholders before recapitalization: $ million

Net income to common stockholders after recapitalization: $ million
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? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answers to two decimal places.
Required pre-tax earnings before recapitalization: $ million

Required pre-tax earnings after recapitalization: $ million
How is the debt ratio (i.e., liabilities/total assets) affected by the reorganization? Round your answers to two decimal places.
Debt ratio before reorganization: %

Debt ratio after reorganization: %

Suppose you treated preferred stock as debt and calculated the resulting debt ratios. How are these ratios affected?

Debt ratio before reorganization: %

Debt ratio after reorganization: %

If you were a holder of Verbrugge's common stock, would you vote in favor of the reorganization? Why or why not?

-Select-YesNoItem 33 , because (1) earnings to shareholders are -Select-increaseddecreasedItem 34 , (2) earnings required to cover fixed charges (including preferred dividends) are -Select-increaseddecreasedItem 35 , and (3) income debentures are -Select-lessmoreItem 36 risky to the shareholders than preferred stock.