The Marsh Company, Whose Present Balance Sheet Is Summarized Below

question 61

Multiple Choice

The Marsh Company, whose present balance sheet is summarized below, is considering the issuance of $50 million of 8% subordinated debentures that are convertible into common stock at a price of $20. $\begin{array}{llll}\text { Balance Sheet }\\\text { (millions of dollars) }\\\text { Current Assets } & \$ 150 & \text { Current Liabilities } & \$ 100 \\\text { Fixed Assets, net } & \$ 350 & \text { Long-term Debt } & \$ 150\\\text { Total } & \$ 500&\text { Common Equity } & \$ 250 \\&&\text { Total } & \$ 500\end{array}$ ? Determine the amount of long-term debt (LTD) and common equity (CE) on the pro forma balance sheet, assuming conversion of the entire issue. (Answers are in $ million.)

• A) LTD $150, CE $250
• B) LTD $150, CE $300
• C) LTD $200, CE $300
• D) LTD $200, CE $250

---

Definitions:

Fiscal Policy

A government's strategy in managing its taxes and spending to influence the nation's economy.

Nondiscretionary

Relating to expenditure or investment decisions bound by specific rules or criteria, not subject to personal judgment or preference.

Political Negotiations

The process whereby representatives of groups or states with differing interests meet to discuss and attempt to resolve conflicts by reaching agreements.

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, regulating banks, and seeking to ensure financial stability.