Impact of Capital Structure on Firm Value

The company’s leverage ratio is 28% - 72% of its assets are financed by common equity and the company was profitable in the last reporting period. The company should easily raise additional funds from creditors and a convertible debenture will be an appealing venture for creditors who would want to purchase stocks of the company in the future.

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.

The additional funds, especially under 3, may enable the firm to become more current on its trade credit. Also, the bonds will no doubt be subordinated debentures.

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(TCO A) On January 2, 2010, Farr Co. issued 10-year convertible bonds at 105. During 2012, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr's common stock was 50 percent above its par value. On January 2, 2010, cash proceeds from the issuance of the convertible bonds should be reported as

On the occurrence of any liquidation, dissolution or winding up of the Company, the Series A Preferred shareholders will be entitled to receive, in preference to the ordinary shareholders, an amount equal to US$2 per share plus any accrued but unpaid dividends. If any sums remain after such payment, they will be distributed to all shareholders on an as converted basis.

We are pleased to present to you the salient features of our proposed $5B convertible debt offering for your careful review and approval. We deemed it appropriate to walk you through the analytical process in coming up with the right mix of conversion premium and coupon rate. We initially consider a conversion premium of 25% and determine its corresponding coupon rate. We then explore the appropriateness of such a premium and explore other conversion premium-coupon rate combinations and determine which combination would be optimal for both the

This will enable the company to raise huge amount of funds by issuing bond. The main advantage is that the company is not required to pay principal until maturity time; risk involved in bond issue is less which will reduce the cost of loan (Www.boundless.com, n.d.). Debt financing will not dilute the ownership and any decision related to the company can be made fast without any intervention, company will have more independence to make reinvestment of entire profit earned into the future development of the business (Inc.com, n.d.). In this case, debt holders do not have any claim over the economic profits apart from the interest payment, and debt market is more efficient (Bradshaw, 2013). Fixed amount

The announcement has come at a time when CDPQ is already in discussions with other investors like State General Reserve Fund of Oman (SGRF) and Kuwait Investment Authority along with domestic players including Tata Power and ICICI Venture. This is with the aim of entering into a joint venture platform for buying out troubled power assets in India. The combined investment from these investors amount to $650 million of equity for creating a dedicated pool of $850

The borrowings increased the RJR debts issued in 1984 bringing an A debt rating, therefore in financing the remaining $1 billion the below should be put into consideration:

As observed in the graphical representation, there is definitely a clear difference in the value of Debt-to-Equit ratio for Aveva inc as compared to that of Drax plc. The financial performance for Aveva as can be seen on the figure above show a consistent results in every single year, with only FY 2014-205 showing a little rise which can be attributed to the uncertainties in stock markets as a result to slowdown that was experienced in China and the Asian countries. Drax Plc has had a rise in its DE ratio continuously.

Additionally, in October 2015, ATSI (American Transmission Systems, Incorporated) “issued in total $150 million of senior notes: $75 million of 4.00% senior notes due April 2026 and $75 million of 5.23% senior notes due October 2045. The proceeds resulting from the issuance of the senior notes were used: (i) to fund capital expenditures, including with respect to ATSI’s transmission expansion plans; (ii) for working capital needs and other general business purposes; and (iii) to repay borrowings under the FirstEnergy regulated companies’ money pool.” (FirstEnergy Corp., p.38).

 These materials do not constitute an offer of securities.  Such an offer will only be made by means of a confidential private placement memorandum to be furnished to qualified prospective investors.  This document is confidential and is intended only for the information of the person to whom it was delivered.  This document is not to be

What is my company worth? What are the ratios used by analysts to determine whether a stock is undervalued or overvalued? How valid is the discounted present value approach? How can one value a company as a going concern, and how does this change in the context of a potential acquisition, or when the company faces financial stress?

Looking at the capital structure, the Debt/Equity ratio has moved in a favorable direction from 1.39 to 1.36