Financial Statement Impact: Debt Versus Equity
Bitsy Betsy, Inc. has the following capital structure:
|
Current liabilities |
$ 35,000,000 |
|
Long term debt |
35,000,000 |
|
Preferred stock (no par) |
45,000,000 |
|
Common stock (no par) |
45,000,000 |
|
Retained earnings |
10,000,000 |
|
Total liabilities and shareholders’ equity |
$170,000,000 |
Required
a. Calculate Betsy’s capital structure after issuing $25 million of new debt.
b. Recalculate Betsy’s capital structure after converting half the long term debt, including that issued in part a, to common stock.
c. Recalculate Betsy’s capital structure after converting all its preferred stock to common stock.
d. Recalculate Betsy’s capital structure after suffering losses of $10 million in the next fiscal year.