Reference no: EM13343578

The Verbrugge Publishing Company's 2010 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
			$6 preferred stock, $112.50 par value (1,200,000 shares)	135
			$10.50 preferred stock, no par, callable at $150 (60,000 shares)	9
			Common stock, $1.50 par value (6,000,000 shares)	9
			Retained earnings	57
Total assets	$336		Total claims	$336

 

Income Statement
Net sales	$540.0
Operating expense	516.0
Net operating income	$ 24.0
Other income	3.0
EBT	$ 27.0
Taxes (50%)	13.5
Net income	$ 13.5
Dividends on $6 preferred	7.2
Dividends on $10.50 preferred	0.6
Income available to common stockholders	$ 5.7

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 a par value of $39.00 plus one 7% subordinated income debenture with a par value of $73.5. The $10.50 preferred issue will be retired with cash.

a.        Construct the pro forma balance sheet while assuming that reorganization takes place. Show the new preferred 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 pro forma balance sheet (in millions of dollars) follows:

Current assets	$ ________		Current liabilities	$ ________
Net fixed assets	$ ________		Advance payments	$ ________
Goodwill	$ ________		Reserves	$ ________
			Subordinated debentures	$ ________
			$2.9 preferred stock, $39 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. 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 pro forma 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