Arnold Athletic Case Study

Issuing additional debt to finance the company expansion would worsen the company’s debt ratio as it is already more than average. The company envisions to be profitable by raising capital from existing stockholders by issuing common stock through rights offering.

o Cost of debt in this case is 12.5% though MCI can raise $ 100 million more with this option in comparison to option (a) above. Servicing this debt would be a significant drain on the cash flow. o Please see Exhibit 3. (c) $600 million Convertible offering @ 7.625% 20 year with conversion at 54 per share o Using this option MCI can raise $ 100 million more than option (b) at 4.88% lower rate of interest. It also gives MCI an option to convert it to equity once the stock price reaches 54 (it is currently 47). Based on previous convertible offerings (As per exhibit 6 of case, 1978, 1979, 1980, 1981 and 1982), MCI has been converting it to equity within 18 months because of its high growth. As higher growth is projected for the next few years (Exhibit 9 of case), MCI is expected to convert this $600 million offering to equity, thereby reducing its leverage. o This option allows to finance its current activities and match capital inflows with expected investment outlays in the near future. It also allows MCI the option to eliminate the cash flow drain from servicing the debt once the stock price increases. o As per Exhibit 3 attached here, this offering will provide capital to meet the external financing needs for 1983.

Decision Making Area 3:Investment Decisions * Table of Articles * Summary of Articles * Observations * Conclusion

Question 5: Evaluate the Put-Warrant/Convertible Bond proposal. Does it solve Intel’s capital structure dilemma? What arguments might be made in favor of it?

Andrea Winfield considered issuing bonds was not a good option for financing the acquisition. She was particularly concerned about the increasing long-term debt and annual cash layout of $ 6.25 million for 15 years. We believe that her concerns are justified, because the Company had already significant amount of debt that could result in higher risks and stock price

The company position is strong enough so its better that company should use debt financing instead of equity financing.

2. New bank credit facility, 600 million cash on hand to take advantage of opportunities that may arise

Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。

When new equity is to be raised, then there will be floatation cost. The net price will be $25-$2 the floatation cost = $23.

4. What offer would you make in an effort to gain the support of the Robertson family and the great majority of the stockholders, while improving the long-term trend of Monmouth’s earnings per share over the next five years?

negative equity position of $84 million The challenge - to determine whether the company’s capital could be restructured in a way that would satisfy its creditors without diluting the stock any further than was necessary

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

Currently, Nike stand as a leading figure in producing high quality sports and fitness equipment and apparels. Bearing just a simple start of selling Japanese imported shoes from a station wagon has transformed

(10 points) Mango, Inc. has had debt with market value of $1 million that has paid a 6% coupon and has had an expiration date that is far, far away. The expected annual earnings before interest and taxes for the firm are $2 million and the firm has not grown, nor does it have plans for any growth. The firm however has just raised more equity to retire all its debt. If the required rate of return to equity-holders (after the capital structure change) is now 20%, what is the market value of the firm? Assume there are no taxes. (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.)

1.One being an IPO offering, requiring the sale of less than 9% of the company. This offering will be for 3.5 million shares, with an expected sale price at between $14 and $18 per share.