Reference no: EM13343578
The Verbrugge Publishing Company's 2010 balance sheet and income statement are as follows (in millions of dollars).
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Balance Sheet
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Current assets
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$168
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Current liabilities
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$42
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Net fixed assets
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153
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Advance payments
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78
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Goodwill
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15
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Reserves
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6
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$6 preferred stock, $112.50 par value (1,200,000 shares)
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135
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$10.50 preferred stock, no par, callable at $150 (60,000 shares)
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9
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Common stock, $1.50 par value (6,000,000 shares)
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9
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Retained earnings
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57
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Total assets
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$336
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Total claims
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$336
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Income Statement
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Net sales
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$540.0
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Operating expense
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516.0
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Net operating income
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$ 24.0
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Other income
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3.0
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EBT
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$ 27.0
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Taxes (50%)
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13.5
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Net income
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$ 13.5
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Dividends on $6 preferred
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7.2
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Dividends on $10.50 preferred
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0.6
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Income available to common stockholders
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$ 5.7
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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 $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.
The pro forma balance sheet (in millions of dollars) follows:
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Current assets
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$ ________
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Current liabilities
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$ ________
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Net fixed assets
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$ ________
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Advance payments
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$ ________
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Goodwill
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$ ________
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Reserves
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$ ________
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Subordinated debentures
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$ ________
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$2.9 preferred stock, $39 par value(1,200,000 shares)
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$ ________
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Common stock, $1.50 par value (6,000,000 shares)
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$ ________
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Retained earnings
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$ ________
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Total assets
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$ ________
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Total claims
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$ ________
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b. Construct the projected income statement. Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.
The pro forma income statement (in millions of dollars) follows:
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Net sales
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$ ________
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Operating expense
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$ ________
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Net operating income
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$ ________
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Other income
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$ ________
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EBIT
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$ ________
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Interest expense
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$ ________
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EBT
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$ ________
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Taxes (50%)
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$ ________
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Net income
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$ ________
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Dividends on $2.90 preferred
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$ ________
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Income available to common stockholders
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$ ________
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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 $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.
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The required pre-tax earnings before recapitalization
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$ ________ million
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The required pre-tax earnings after recapitalization
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$ ________ million
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