The Verbrugge Publishing Company?s balance sheet and income statement are as follows (in millions of dollars): Balance Sheet: Current Assets $168 Net Fixed Assets $153 Goodwill $ 15 Total Assets $336 Current Liabilities $ 42 Advance Payments $ 78 Reserves $ 6 PreferredStock $6, 112.50 Value @ 1,200,000 shares $135 Preferred Stock no par 10.50 (preferred) Callable at $150 60,000 shares $ 9 Common Stock $1.50 par value 6,000,000 shares $ 57 Total Claims $ 336 Income Statement Net Sales $540 Operating Ex $516 Net op inc. $ 24 Other Income $ 3 EBT $ 27 Taxes (50%) $13.5 Net Income $13.5 Dividends on $6 pref $ 7.2 Dividends on 10.50 pr $ .6 Income avil to comm. $ 5.7 Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will exchanged for one share of $2.40 preferred with a par value of $37.50 plus one 8% subordinated income debenture with a par value of $75. The 10.50 preferred will be retired with cash. a) Construct the pro forma balance sheet assuming that reorganization takes place. Show the new preferred stock at its par value. b) Construct the pro forma income statement. What is the income available to common shareholders in the proposed recapitalization? 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? d) How is the debt ratio affected by the reorganization? If you were a holder of Verbrugge?s common stock, would you vote in favor of the reorganization?

Week 7 Chapters 29, 30 Mergers & Bankruptcy The Verbrugge Publishing Company's balance sheet and income statement are as follows (in millions of dollars): Balance Sheet: Current Assets Net Fixed Assets Goodwill Total Assets Current Liabilities Advance Payments Reserves PreferredStock $6, 112.50 Value @ 1,200,000 shares Preferred Stock no par 10.50 (preferred) Callable at $150 60,000 shares Common Stock $1.50 par value 6,000,000 shares Total Claims Income Statement Net Sales Operating Ex Net op inc. Other Income EBT Taxes (50%) Net Income Dividends on $6 pref Dividends on 10.50 pr Income avil to comm. $168 $153 $ 15 $336 $ 42 $ 78 $ 6 $135 $ 9 $ 57 $ 336 $540 $516 $ 24 $ 3 $ 27 $13.5 $13.5 $ 7.2 $ .6 $ 5.7 Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will exchanged for one share of $2.40 preferred with a par value of $37.50 plus one 8% subordinated income debenture with a par value of $75. The 10.50 preferred will be retired with cash. a) Construct the pro forma balance sheet assuming that reorganization takes place. Show the new preferred stock at its par value. b) Construct the pro forma income statement. What is the income available to common shareholders in the proposed recapitalization? 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? d) How is the debt ratio affected by the reorganization? If you were a holder of Verbrugge's common stock, would you vote in favor of the reorganization