Winfield Refuge

1241 Words5 Pages
Q1 what are the annual cash outlays associated with the bond issue? The common stock issue? Bond Issue Q2 Analyze and respond to each director’s assessment of the financing decision. Leo Staumpe believes that MPIS is an excellent buy that will offer tremendous revenue synergy and cost reduction opportunities. Board of directors also agrees with the assessment; the only decision is on the mode to secure funding for the acquisition. Two options available to secure a funding of125 million are for the funds are: 1. Issue bonds for 125 million at 6.25% interest rate and 15 year maturity. Annual principal repayment will be 6.25 million, leaving 37.5 million outstanding at maturity. 2. Issue 7.5 million additional common stocks at the…show more content…
The same value has been captured in the form of increase in the EPS. Hence the shareholders will be better served with raising funds through debt. James Gitanga James opinions that all major players in the industry rely on long term debt in their capital structure. James’s observation seems to be true based on the exhibit 1 where all the player are showing long-term debt to equity ratio. Based on the industry insight, James questions the Winfield’s policy against debt. We agree with James analysis based on the industry insight. It is a relatively stable industry with steady forecasts. Probably that is the reason that all other major players do not hesitate in taking long-term debt. We also do not see any reason to avoid long term debt in Winfield. Q3 How should the acquisition of MPIS be financed, taking into account the issues of control, flexibility, income, and risk? Let’s look into both the options (debt vs stock) on all the 4 parameters: control, flexibility, income, and risk. Control Winfield is a publicly traded company however, majority of the stocks (79%) are held by Winfield management. Winfield management will continue to hold 79% stocks if they are raising funds through debt however, their share will drop to 54% if they decide to raise the money through common stocks. 54% is still majority of the stocks so Winfield management will continue to control the
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