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Please review and help with the the following problem:

The Verbrugge Publishing Company's 2007 balance sheet and income statement are as follows (in millions of dollars):

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?

Text Answers
a.Total assets: $327m
b.Income: $7M
c.Before: $15.6
After: $13M
d.Before: 35.7%
After: 64.2%

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.
Please help.


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Solution Summary

The solution explains calculations relating to a voluntary reorganization plan.

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Termination and Liquidation of a Business

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I'm having a little difficulty understanding this problem. I entered some of the values, but I'm confused. Please advise.

The Partnership of Frick, Wilson and Clarke has elected to cease all operations and liquidate it's business property.
A balance sheet drawn up at this time shows the following account balances:

Cash................................$48,000 Liabilities.........................$35,0000
Non Cash Assets...........177,000 Frick, Capital 60%...........101,000

wilson,Capital 20%..........28,000
Clarke, Capital 20%...........61,000

Total Assets................$225,000 Total Liabilities and Capital $225,000

The Following transactions occur in liquidating this business:
~Distributed safe captial balances immediately to the partners. Liquidation expenses of $9000
~Sold noncash assets with a book calue of $80,000 for $48,000
~Paid all liabilities
~Distributed safe capital balances again
~Sold remaining noncash assets for $44,000
~Paid liquidation expenses of $7,000
~Distributed remaining cash to the partners and closed the financial records of the business permanently.

Produce a final schedule of Liquidation for this partnership

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