Corizon Company's balance sheet and income statement are shown below (in millions of dollars). Corizon and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $5 preferred will be exchanged for one share of $2.00 preferred with a par value of $50 plus one 10 percent subordinated income debenture with a par value of $50. The $8 preferred issue will be retired with cash. The company's tax rate is 30 percent
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 reorganization 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. Would the common stockholders be in favor of the reorganization? Why or whynot?