Corizon Company's balance sheet and income statement are shown below (in millions of dollars). Corizon and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $5 preferred will be exchanged for one share of $2.00 preferred with a par value of $50 plus one 10% subordinated income debenture with a par value of $50. The $8 preferred issue will be retired with cash. The company's tax rate is 30%.
Balance Sheet prior to Reorganization (in millions) Current Assets 200 Current liabilities 175 Net fixed assets 225 Advance payments 10 $5 preferred stock, $100 par value (1,000,000) shares 100 $8 preferred stock, no par, callable at 100 (80,000 shares) 8 Common stock, $1.00 par value (25,000,000) shares 25 Retained earnings 107 Total assets 425 Total claims 425
A. construct the pro forma balance sheet after the 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. Calculate the required pre-tax earnings before and after the recapitalization?
D. Calculate the debt ratio before and after the reorganization?
E. Would the common stockholders be in favor of the reorganization? Why or why not?
Corizon Company's balance sheet and income statement are shown below (in millions of dollars). Corizon and its creditors have agreed upon a voluntary reorganization plan. In this plan, each share of the $5 preferred will be exchanged for one share of $2.00 preferred with a par value of $50 plus one 10% subordinated income debenture with a par value of $50. The $8 preferred issue will be retired with cash. The company's tax rate is 30%.
| Balance Sheet prior to Reorganization (in millions) | ||||
| Current Assets | 200 | Current liabilities | 175 | |
| Net fixed assets | 225 | Advance payments | 10 | |
| $5 preferred stock, $100 par value (1,000,000) shares | 100 | |||
| $8 preferred stock, no par, callable at 100 (80,000 shares) | 8 | |||
| Common stock, $1.00 par value (25,000,000) shares | 25 | |||
| Retained earnings | 107 | |||
| Total assets | 425 | Total claims | 425 | |
A. construct the pro forma balance sheet after the 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. Calculate the required pre-tax earnings before and after the recapitalization?
D. Calculate the debt ratio before and after the reorganization?
E. Would the common stockholders be in favor of the reorganization? Why or why not?
Related questions
Analyzing and Interpreting Equity Accounts and Comprehensive Income
Following is the shareholdersâ equity section of the 2013 balance sheet for Procter & Gamble Company and its statement of shareholdersâ equity.
| June 30 (In millions, except per share amounts) | 2013 |
|---|---|
| Shareholders' Equity | |
| Convertible Class A preferred stock, stated value $ 1 per share | |
| (600 shares authorized) | $ 1,137 |
| Non-voting Class B preferred stock, stated value $ 1 per share | |
| (200 shares authorized) | -- |
| Common stock, stated value $ 1 per share | |
| (10,000 shares authorized; shares issued: 2013-4,009.2) | 4,009 |
| Additional paid-in capital | 63,538 |
| Reserve for ESOP debt retirement | (1,352) |
| Accumulated other comprehensive income/(loss) | (7,499) |
| Treasure stock, at cost (shares held: 2013-1,266.9) | (71,966) |
| Retained earnings | 80,197 |
| Noncontrolling interest | 645 |
| Total shareholders' equity | $ 68,709 |
| Consolidated Statement of Shareholders' Equity | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dollars in millions; Shares in thousands | Common Shares Outstanding | Common Stock | Preferred Stock | Additional Paid-in Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Retained Earnings | Noncontrolling Interest | Total |
| Balance June 30, 2012 | $ 2,748,033 | $ 4,008 | $ 1,195 | $ 63,181 | $ (1,357) | $ (9,333) | $ (69,604) | $ 75,349 | $ 596 | $ 64,035 |
| Net earnings | 11,312 | 90 | 11,402 | |||||||
| Other comprehensive income | 1,834 | 1,834 | ||||||||
| Dividends to shareholders: | ||||||||||
| Common | (6,275) | (6,275) | ||||||||
| Preferred, net of tax benefits | (244) | (244) | ||||||||
| Treasury purchases | (84,234) | (5,986) | (5,986) | |||||||
| Employee plan issuances | 70,923 | 1 | 352 | 3,573 | 3,926 | |||||
| Preferred stock conversions | 7,605 | (58) | 7 | 51 | â | |||||
| ESOP debt impacts | 5 | 55 | 60 | |||||||
| Noncontrolling interest, net | (2) | (41) | (43) | |||||||
| Balance June 30, 2013 | $ 2,742,327 | $ 4,009 | $ 1,137 | $ 63,538 | $ (1,352) | $ (7,499) | $ (71,966) | $ 80,197 | $ 645 | $ 68,709 |
(a) What does the term convertible (in reference to the company's Class A preferred stock) mean?
Convertible means the holder of the security has an obligation to convert (exchange) the security into another security.
Convertible means the holder of the security has an option to surrender the security and to receive cash at any time.
Convertible means the holder of the security has an option to convert (exchange) the security into another security.
Convertible means the holder of the security has an option to sell the security at any time.
(b) How many shares of common stock did Procter & Gamble issue when convertible Class A preferred stock was converted during fiscal 2013?
Answer
thousand shares
(c) For "employee plan issuances," at what average price was the common stock issued as of year-end 2013? (Round your answer to two decimal places.)
$Answer
(d) What is the accumulated other comprehensive income account?
The accumulated other comprehensive income account reflects the cumulative profit recognized by the company less the cumulative dividends that have been paid to shareholders.
The accumulated other comprehensive income account reflects the cumulative change in net assets (defined as assets less liabilities) for transactions other than net income transactions and transactions with shareholders.
The accumulated other comprehensive income account reflects the cumulative profit on transactions with shareholders.
The accumulated other comprehensive income account reflects the cumulative amount by which the company's common stock has increased or decreased since issuance.
(e) What cash dividends did Procter & Gamble pay in 2013 for each class of stock?
Common dividends =Answer
($ millions)
Preferred dividends =Answer($ millions)
