Please review and help with the the following problem:
1. See attached word doc
Verbrugge and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $6 preferred will be exchanged for one share of $2.40 preferred with a par value of $37.50 plus one 8% subordinated income debenture with a par value of $75. The $10.50 preferred issue will be retired with cash.
a. Construct the pro forma balance sheet assuming that reorganization takes place. Show the new preferred stock at its par value.
b. Construct the pro forma income statement. What is the income available to common shareholders in the proposed recapitalization?
c. Required earnings is defined as the amount that is just enough to meet fixed charges (debenture interest and/or preferred dividends). What are the required pre-tax earnings before and after the recapitalization?
d. How is the debt ratio affected by the reorganization? If you were a holder of Verbrugge's common stock, would you vote in favor of the reorganization?
I have worked these problems and my solutions are in the attached excel doc, but answers b,c and d do not match that of the text.
The solution explains calculations relating to a voluntary reorganization plan.