Copy of 20100514+317534+Corporate+reorganization

Copy of 20100514+317534+Corporate+reorganization - A 1 2 3...

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Unformatted text preview: A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 B C Problem 1. Campbell Company's balance sheet and income statement are shown below (in millions of dollars). The company 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 of $50 plus one 10 percent subordinated income debenture with a par value of $50. The $6 preferred issue will be retired with cash. The company's tax rate is 15 percent. Current Assets Net fixed assets Total assets Current 250.0 195.0 445.0 a. Construct the pro forma balance sheet after reorganization takes place. Show the new preferred at its par value. Current Assets Net fixed assets Total assets Current 150.0 195.0 345.0 b. Construct the pro forma income statement after reorganization takes place. How does the reorganization affect net income available to common stockholders? Income Statement Net sales Operating expense Net operating income Other income EBT Taxes Net income Dividends on $4 PS Dividends on $6 PS Income to Common SHs c. Current 600.0 550.0 50.0 10.0 600.0 554.0 46.0 10.0 60.0 9.0 51.0 4.0 4.8 42.2 56.0 8.4 47.6 1.2 46.4 What are the required pre-tax earnings before and after the reorganization? Before Pre-tax earnings 60 d. Calculate the debt ratio before and after the reorganization? Before Debt ratio 0.65 e. Would the common stockholders be in favor of the reorganization? Why or why not? Yes, it is likely that stockholders would be in favor of the reorganization as the income applicable to them after the reorganization is much\ higher than before the reorganization. FINC 5880 Page 1 of 2 06/18/2011 D E 1 2 ent are shown below (in millions of dollars). The company and its creditors have agreed upon 3 referred will be exchanged for one share of $1.50 preferred with a par value of $50 plus one 10 e $6 preferred issue will be retired with cash. The company's tax rate is 15 percent. 4 5 6 7 Current Current liabilities 275.0 8 9 Advance payments 15.00 100.0 10 $4 preferred stock, $100 par value (1,000,000) shares 11 $6 preferred stock, no par, callable at 10 (800,000 shares) 8.0 10.0 12 Common stock, $0.50 par value (20,000,000) shares 13 Retained earnings 37.0 445.0 14 Total claims 15 16 takes place. Show the new preferred at its par value. 17 18 19 Current 275.0 20 Current liabilities 21 Advance payments 15.00 22 Subordinated income debenture 40.00 40.00 23 $1.50 preferred stock, $50 par value (800,000 shares) 24 Common stock, $0.50 par value (20,000,000) shares 10.0 (35.0) 25 Deficit 26 Total claims 345.0 27 28 29 ation takes place. How does the reorganization affect net income available to common 30 31 32 ncome Statement 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 fter the reorganization? 48 49 After 50 56 51 52 53 zation? 54 55 56 After 57 0.96 58 59 eorganization?60 Why or why not? 61 on as the income applicable to them after the reorganization is much\ 62 63 64 FINC 5880 Page 2 of 2 06/18/2011 ...
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This note was uploaded on 06/18/2011 for the course BUSN 5000 taught by Professor Online during the Spring '10 term at Webster.

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