Stone Container

Mr. Shields’ should accept Mr. Fordham’s proposal in relation to the acquisition of Upstate Canning Company, Inc. In this case, Mr. Shields attempts to conclude if he should acquire the company from its owner, Mr. Fordham, using his personal savings of $35,000 in addition to an investment of $65,000 from his associates. Moreover, Mr. Fordham proposes that he will loan Mr. Shields’ $300,000 worth of income bonds, to be repaid in up to 10 years. Mr. Fordham provides Mr. Shields’ with a bond repayment schedule which allows Mr. Shields’ to repay the bonds at a discount if he meets the wishes to repay the bonds back early. Mr. Shields’ faces a

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

Three interrogations were thus to answer. Should the company provide investors with classic bonds or give them the opportunity to convert them into equity? Should they structure the offer with a fixed or a floating coupon rate? And last but not least, where should they locate the operation?

In accordance ASC 470-50-40-21b Modifications to or exchanges of line-of-credit or revolving-debt arrangements resulting in either a new line-of-credit or revolving-debt arrangement or resulting in a traditional term-debt arrangement shall be evaluated in the following manner:“ If the borrowing capacity of the new arrangement is greater than or equal to the borrowing capacity of the old arrangement, then any unamortized deferred costs, any fees paid to the creditor, and any third-party costs incurred shall be associated with the new arrangement (that is, deferred and amortized over the term of the new arrangement.”

Creditors normally focus on the liquidity or solvency of the borrower in terms of current ratio and quick ratio, which indicate whether the company has enough working capital to cover the short-term debts. Myer will enter into a syndicated facility agreement to refinance the existing borrowings of the Myer Group. Besides, creditors are interested in the business risks the company might undertake, which indicate the possibility that the company might be unable to pay back the long-term liability in the future. From this point, the expectation on high return on investment and high profitability in the long run make the creditor’s interest aligned with shareholders’ value.

Nevertheless, the use of the Optimal Capital Structure (OCS) is the right techniques to be used in order to acquire the right combination of debt and equity that can maximize the

The statement of cash flows outlines some of the changes to the capital structure. The company added $164.5 million in a consolidated loan facility, and it paid out $138.1 million in dividends. There were no share buybacks during the year. The company states in the annual report (p.4) that it intends to maintain a conservative gearing ratio. The company in this section attributes its increased borrowings to projects and opportunities on which it has embarked. These investments lie within the integrated retail, franchise and property system. One of the

Torres’ common-size financial statements also show the changing composition of Costco’s financing structure over time. The fact that interest expense consistently fell over the five year span from -0.35% of net sales in 1997 to -0.09% in 2001 demonstrates Costco’s ability to reduce its overall amount of debt during these years. Exhibit nine’s balance sheet portion supports this reduction, documenting an increase in total current liabilities from 35.86% of total assets in 1997 to 40.76% in 2001 and an increase in accounts payable from 25.46% of assets in 1997 to 27.03% in 2001. This signifies that the company’s debts or obligations due within one year increased, further corresponding with the fact that short-term borrowing increased from 0.46% of assets in 1997 to 1.93% in 2001. With an increase in short-term borrowing it is logical to expect to see a decrease in long-term borrowing. The income statement proves that this is indeed the case, documenting a decrease in long-term debt from 16.74% of sales in 1997 to 8.52% in 2001. This relates back to the decrease in Costco’s interest expense on the income statement, representing the company’s decision to switch to short-term and away from long-term methods. Furthermore, the decrease in long-term debt helped account for a decrease in total liabilities from

Target Corporation is having a very stable financial policy and dividend policy. From the historical financial data, Target had debt $11,044M, $11,202M, $10,599M, $17,471M, and $19,882M in the year of 2005,2006,2007,2008, and 2009 respectively. The long-term debt/equity ratio rises from 69.34% to 108%.

Du Pont's financial policy had always been based on maximization of financial flexibility. Taking to consideration the riskiness of Du Pont's businesses, its competitive position and profitability had declined in the last 20 years. Moreover, the firm is still forced to seek external financing each year for the next five years (1983-1987) due to the continued high level of capital expenditures which are considered non-deferrable to redress the causes of poor performance. In view of the importance and magnitude of the projected financing needs, the firm is concerned about how the cost and availability of debt

The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1, we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at 0.59. This raises a question of how the company can meet its interest payments without raising cash or selling assets.

The company currently faces serious financial challenges. It was struggling with declining sales and increasing costs. Since 2004, revenues had fallen by more than 40% while costs especially for employees health insurance, maintenance, and utilities climbed. Credits and loans had been borrowed to

This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.

In July 2002, an investment banker advising Deluxe Corporation must prepare recommendations for the company’s board of directors regarding the firm’s financial policy. Some special considerations are the mix of debt and equity, maintenance of financial flexibility, and the preservation of an investment-grade bond rating. Complicating the assessment are low growth and technological obsolescence in the firm’s core business. The purpose is to recommend an appropriate financial policy for the firm and, in support of that recommendation, to show the impact on the firm’s cost of capital, financial flexibility (i.e., unused debt capacity), bond rating, and other considerations.

The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening