The Verbrugge Publishing Company's 2016 balance sheet and income statement are as follows (in millions of dollars). Balance Sheet Current assets $168 Current liabilities $42 Net fixed assets 153 Advance payments 78 Goodwill 15 Reserves 6 135 9 $6 preferred stock, $112.50 par value (1,200,000 shares) $10.50 preferred stock, no par, callable at $150 (60,000 shares) Common stock, $1.50 par value (6,000,000 shares) Retained earnings $336 Total claims 9 57 Total assets $336 Income Net sales $540.0 516.0 Operating expense Net operating income $ 24.0 Other income 3.0 EBT $ 27.0 Taxes (50%) 13.5 Net income $ 13.5 7.2 Dividends on $6 preferred Dividends on $10.50 preferred Income available to common stockholders 0.6 $ 5.7 par value of $38.00 plus Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will be exchanged for one share of $2.90 preferred with one 7% subordinated income debenture with a par value of $74.5. 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 its par value. Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. The projected balance sheet in millions of dollars) follows: Current assets Current liabilities $ Net fixed assets Advance payments $ Goodwill Reserves $ Subordinated debentures $ $ $2.9 preferred stock, $38 par value (1,200,000 shares) $ Common stock, $1.50 par value (6,000,000 shares) Retained earnings $ Total assets Total claims b. Construct the projected income statement. What is the income available to common shareholders in the proposed recapitalization? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. 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 expense $ EBT $ Taxes (50%) $ Net income $ Dividends on $2.90 preferred $ Income available to common stockholders c. Required earnings is defined as the amount that is just enough to meet fixed charges (debenture interest and/or preferred dividends). What are the required pre-tax earnings before and after the recapitalization? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. The required pre-tax earnings before recapitalization million The required pre-tax earnings after recapitalization million d. How is the debt ratio affected by the reorganization? Round your answers to two decimal places. The debt ratio before reorganization % The debt ratio after reorganization % The Verbrugge Publishing Company's 2016 balance sheet and income statement are as follows (in millions of dollars). Balance Sheet Current assets $168 Current liabilities $42 Net fixed assets 153 Advance payments 78 Goodwill 15 Reserves 6 135 9 $6 preferred stock, $112.50 par value (1,200,000 shares) $10.50 preferred stock, no par, callable at $150 (60,000 shares) Common stock, $1.50 par value (6,000,000 shares) Retained earnings $336 Total claims 9 57 Total assets $336 Income Net sales $540.0 516.0 Operating expense Net operating income $ 24.0 Other income 3.0 EBT $ 27.0 Taxes (50%) 13.5 Net income $ 13.5 7.2 Dividends on $6 preferred Dividends on $10.50 preferred Income available to common stockholders 0.6 $ 5.7 par value of $38.00 plus Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will be exchanged for one share of $2.90 preferred with one 7% subordinated income debenture with a par value of $74.5. 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 its par value. Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. The projected balance sheet in millions of dollars) follows: Current assets Current liabilities $ Net fixed assets Advance payments $ Goodwill Reserves $ Subordinated debentures $ $ $2.9 preferred stock, $38 par value (1,200,000 shares) $ Common stock, $1.50 par value (6,000,000 shares) Retained earnings $ Total assets Total claims b. Construct the projected income statement. What is the income available to common shareholders in the proposed recapitalization? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. 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 expense $ EBT $ Taxes (50%) $ Net income $ Dividends on $2.90 preferred $ Income available to common stockholders c. Required earnings is defined as the amount that is just enough to meet fixed charges (debenture interest and/or preferred dividends). What are the required pre-tax earnings before and after the recapitalization? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. The required pre-tax earnings before recapitalization million The required pre-tax earnings after recapitalization million d. How is the debt ratio affected by the reorganization? Round your answers to two decimal places. The debt ratio before reorganization % The debt ratio after reorganization %
