FINA 395 Chapter Notes - Chapter 15: Net Income, Retained Earnings, Saab H Engine
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The ownersâ equity accounts for Overby International are shown here:
Common stock ($1 par value) | $ | 70,000 | ||
Capital surplus | 197,000 | |||
Retained earnings | 650,000 | |||
Total ownersâ equity | $ | 917,000 | ||
a. Assume the company's stock currently sells for $46 per share and a stock dividend of 5 percent is declared.
How many new shares will be distributed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
New shares issued
Show the new balance for each equity account. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
Common stock | $ | ||
Capital surplus | |||
Retained earnings | |||
Total ownersâ equity | $ | ||
b. Now assume that instead the company declares a stock dividend of 10 percent.
How many new shares will be distributed? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
New shares issued
Show the new balance for each equity account. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
Common stock | $ | ||
Capital surplus | |||
Retained earnings | |||
Total ownersâ equity | $ | ||
Consider the following premerger information about Firm X and Firm Y: |
Firm X | Firm Y | |||||
Total earnings | $ | 89,000 | $ | 19,000 | ||
Shares outstanding | 46,000 | 11,000 | ||||
Pre-share values: | ||||||
Market | $ | 46 | $ | 17 | ||
Book | $ | 15 | $ | 6 | ||
Assume that Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $4 per share, and that neither firm has any debt before or after the merger. |
a. | Assuming the pooling of interests method is used, what is the equity of the combined firm? |
Equity value | $ |
b. | List the assets of the combined firm assuming the purchase accounting method is used. |
Assets from X | $ |
Assets from Y | |
Goodwill | |
Total Assets XY | $ |
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?