OVERVIEW
In this case Tirstup, a Danish company, is acquiring a U.S. based business, Medtechnics, for 410 million. Tirstrup asked Julie Harbjerb, Assistant Treasurer International, to put together a proposal for financing the acquisition. She has to keep in mind Tirstrup has 30 million in cash, they earned 163 million from a sale and the priorities are not to issue additional equity of convertible shares.
QUESTIONS
Question 1: Which of the many debt characteristics – currency, maturity, cost, fixed versus floating rate – do you believe are of the highest priority for Julie and Tirstrup?
According to the case study, Julie Harberj is assembling a proposal pertaining to the financing requirements for the acquisition of Medtechnics. The
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We are also not recommending the euro denominated Eurobond that offers a fixed rate of 4.8%, 2% fees and an all-in-cost of 5.147% because we feel that maintaining a localized financial structure (dollar denominated) outweighs the lower all-in-cost then the two recommended options. Lastly, we are not recommending the Yankee bond because we feel it would be difficult for Tirshrup to obtain the $100 million because they have no operations in the United States and very little name recognition as a borrower. To obtain the last $5 million needed to complete the financing package we are recommending that Tirshrup work at obtaining a Yankee bond. We feel the lower amount will increase their odds of obtaining one plus it would help to position them in the United States market and help them gain the name recognition and the visibility needed. Yankee bonds can help issuers take advantage of relatively favorable regulatory and lending conditions in the U.S. as well as the large bond market. Plus investors like Yankee bonds because they offer geographic and currency diversification as well as some tax advantages. (Yankee Bonds) Below is the overall financing package recommendation for Tirshrup: Five-year note to Medtechnics: $ 75 million Cash on hand: $ 30 million US$ Eurobond: $100
Another option is the issuing of preferred stock, the company’s common stock is already overvalued in the market; therefore, sourcing additional capital through common stock might result to lower proceeds.
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
If Timken decides to go forward with the acquisition, Timken should structure the deal with both cash and stock-for-stock offering. Ingersoll-Rand is
(d) $1 billion 10 year debenture @ 7.5% with 18.18 warrants at $ 55 exercisable until 1988.
1. Using the current ratio, discuss what conclusions you can make about each company’s ability to pay current liabilities (debt).
James Gitanga was not sure about the unusual capital structure of the Company, avoiding the long-term debt. We believe that the long-term capital structure across the industry was pre-determined by the high capital expenditures and steady cash inflows. Thus, issuing long-term debt was more preferable. Besides, by issuing debt they would enjoy the tax shield since interest on long-term debt is tax-deductible.
Based on the Exhibit 9A in the case, we can calculate the Source and Use of Funds. As Exhibit 1 suggests, the company require about $4.8 billion during 1984 and 1990. This is basically due to the required new capex during the same period, which will be accumulated to $10.2 billion, and the increase of cash holding, $2.0 billion, as a use of funds and the company can generate funds from operation, only $7.8 billion. Therefore, the company needs to fill the gap by sourcing external finance of about $4.8 billion. This amount will vary depending primarily on two factors; 1) whether MCI can expand market share as forecasted amid the increasing
“Right off hand I remember that National Telecommunicating Data and Glorious Home Products are two of them. Both of these companies have done very well over the past five years and are certainly good companies for the long pull. Since these bonds are so short-term, I would be very comfortable for you to own them. Why don’t you come down tomorrow and let me show you some information.”
The case is set in the context of RJR’s 1985 financing of its $4.9 billion acquisition of Nabisco Brands Inc. To finance the acquisition, RJR was proposing the issue of $1.2 billion of 12 year notes and the same amount in preferred stock. It had already funded $1.5 billion of the acquisition leaving $1 billion more to finance.
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.
Introduction. This paper discusses the value of a one-year Cardinal Health bond. The approximate value of such a bond is determined, reflecting knowledge of time value of money, and the bond's value is discussed in relation to the operating statistics of the company. There is also discussion of competitor's similar bonds and the relative value of those compared with the Cardinal bond.
The venture leasing deal that Aberlyn proposed to RhoMed is an innovative way for RhoMed, a start-up firm, to acquire financing without diluting its equity value and raising debt in the market. Management believes that the firm is more valuable than venture capital firms would believe, and debt financing would be extremely costly since RhoMed doesn’t currently have positive cash flow. For Aberlyn, the main benefits of the transaction are the interest payments paid on the lease and potential to sell the patent for a much higher value than the original $1 Million valuation by RhoMed. However, this is a rather risky investment for Aberlyn. If RhoMed defaults on its payments, Aberlyn uses the patent as collateral and
(5 points) In a world with no frictions (i.e., taxes, etc.), having debt is always better because it increases the value of the firm/projet.