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ABC Company's current balance sheet and income statement are presented below: Balance Sheet 214 189 74 Current assets Net fixed assets Intangibles Current liabilities Advanced payments $5 preferred, $122 par (1,450,000 shares) $12 preferred, $177 par (50,000 shares) Common stock $2 par (7,000,000 shares) Retained Earnings Total claims 176.9 8.85 14 147.25 480 Total assets 480 Income Statement Net sales Operating costs EBIT Interest expense EBT Taxes (40%) Net income Dividends on $5 preferred Dividends on $12 preferred Income available to shareholders 720 684 36 0 36 14.4 21.6 7.2 .6 13.8 ABC & its creditors have agreed on the following reorganizational plan. Each share of the $5 preferred will be exchanged for a share of $2.5 preferred with a par of $52 plus one 7% subordinated debenture with a par of $70. The $12 preferred will be completely retired with cash. A. Construct the projected balance sheet and income statement assuming B. What is the income available to shareholders in the proposed C. What are the required pre-tax earnings before and after recapitalization? the reorganization takes place. recapitalization? Remember, required earnings are the amounts necessary to meet fixed charges-debenture interest and/or preferred dividends). Also, dividends are paid in after tax monies!! D. What is the debt ratio before and after recapitalization

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