Problem:
Campbell Co. balance sheet and income statement are shown below (in millions). The Co. 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 for $50 plus one 10% subordinated income debenture with a par value of $50. The $6 preferred issue will be retired with cash.
current assets 250.0 current liability 275.0
net fixed 195.0 adv. payment 15.0
$4 pre. stock $100 par
(1,000,000) shares 100.00
$6 pre. stock no par at
10(800,000) share 8.0
common stock, .50 par
(20,000,000)shares 10.0
retained earnings 37,0
total assets 445.0 total claims 445.0
Question 1: Construct the pro forma balance sheet after reorganization takes place. Show the new preferred at its par value.
Question 2: Construct the pro forma income statement after reorganization takes place. How does the recapitalization affect net income available to common stockholders.
Question 3: What are the required pre-tax earnings before and after the reorganization.
Question 4: Calculate the debt ratio before and after the reorganization.
Question 5: Would the common stockholder be in favor of the reorganization. why or why not.