The verbrugge publishing company's 2019 balance sheet and income statement are as follows

Balance Sheet

Current assets $300

Net Fixed Assets 200

Total assets 500

Current Liabilities $40

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 (200,00) shares $200

Common stock, $2 par value

(5,000,000 shares) $10

Retained Earnings $60

Total liabilities and equity $500

Income Statement

Net Sales $540

Operating Expense $516

Net Operating income $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 or $2.40 preferred with a par value of $35 plus on 8% subordinated income debenture with a par value of $75. The callable preferred issue with 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 is par value. What is the 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 noncallable preferred stockholders after the reorganization? What was the new income to common stockholders before and after reorganization

d)Required pre-tax earnings are defined as the amount that is just large enough to meet fixed charges. What are the required pre-tax earnings before and after recapitalization?

e) How is the debt ration affected by 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 or the reorganization? Why or Why not?