The Verbrugge Publishing Company’s 2010 balance sheet and income statement are as follows (in millions of dollars):

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 projected balance sheet while assuming that reorganization takes place. Show the new preferred stock at its par value.
b. Construct the projected 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?