Reference no: EM13278947

Novotech Inc 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 $4 preferred will be exchanged for one share of $1.50 preferred with a par value of $50 plus one 10 percent subordinated income debenture with a par value of $50. The $6 preferred issue will be retired with cash. Balance Sheet Current Current Current Assets 250.0 Current liabilities 275.0 Net fixed assets 195.0 Advance payments 15.00 $4 preferred stock, $100 par value (1,000,000) shares 100.0 $6 preferred stock, no par, callable at 10 (800,000 shares) 8.0 Common stock, $0.50 par value (20,000,000) shares 10.0 Retained earnings 37.0 Total assets 445.0 Total claims 445.0 Income Statement Current Net sales 600.0 Operating expense 500.0 Net operating income 100.0 Other income 20.0 EBT 120.0 Taxes 24.0 20% Tax rate Net income 96.0 Dividends on $4 PS 4.0 Dividends on $6 PS 4.8 Income to Common SHs 87.2 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? c. What are the required pre-tax earnings before and after the reorganization? d. Calculate the debt ratio before and after the reorganization? e. If you are a common stockholder of Novotech, would you vote in favor of the reorganization? Why or why not?