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pro forma balance sheet

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

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 recapitalization 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 stockholder be in favor of the reorganization. why or why not.

Solution Preview

Proforma Balance sheet after Reorganisation

Part a

Balance Sheet
Current Current
Current Assets 242.0 Current liabilities 275.0 The $6 preferred stock of 8 million have been paid with cash. We have reduced the cash and also preferred stock.
Net fixed assets 195.0 Advance payments 15.00
$1.5 preferred stock, $50 par value (1,000,000) shares 50.0
10% subordinated income debentures(1,000,000) 50.0

Common stock, $0.50 par value ...

Solution Summary

A pro forma balance sheet is examined. The income statement is determined.