The Verbrugge Publishing Company’s 2019 balance sheet and income statement are as follows (in millions of dollars):
Balance Sheet
Current Assets $300 Currnet Liabilities $40
Net Fixed Assets 200 Advance Payment 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 (200,000 shares)
200
Common stock, $2 par value (5,000,000 shares)
10
Retained earnings
60
Total Assets $500
Total liabilities & equity
$500
Income Statement
Net Sales $540
Operating expenses (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 non-callable preferred will be exchanged for 1 share of $2.40 preferred
with a par value of $35 plus one 8% subordinated income debenture with a par value of $75.
The callable preferred issue will be retired with cash generated by reducing current assets.
Assume that the reorganization takes place and construct the projected balance.
Show the new preferred stock at its par value. What is the value for total assets? For
debt? For preferred stock?
Construct the projected income statement. What is the income available to common
shareholders in the proposed recapitalization?