Winfield Inc Case Study

Decent Essays

Problem Statement:
Winfield Refuse’s acquisition of MPIS was a great opportunity to increase revenue and reduce costs through economies of scale. However, the expansion of the firm also means that Winfield Inc. needs to select a method of external financing to continue its operations effectively.
The Winfield family and senior management held 79% of common stock in 2012. This means the company places tremendous importance in the ownership of company. The acquisition of MIPS should not change the stakes of ownership of Winfield Refuse.
Board Discussion 2012
CFO Mamie Sheene recommended issuing bonds, based on an annual cash cost calculation of 6% for stock issuance. Her rationale was that Winfield could sell $125 million in bonds to …show more content…

Debt Financing
On the other hand, the issuance of bonds to fill the need for additional capital to expand does not require handing over a part of the company. Massachusetts insurance has no say in how the management runs Winfield after issuing bonds. The business relationship between the two institutions will terminate in 15 years (at maturity). The principal and interest are known figures that can be built into the company budget over the upcoming years. Still, money borrowed must be paid back. Taking on too much debt can cause cash flow problems, which can mean difficulty to repay the loan back. If Winfield has too much debt, it can be seen as “high risk” by potential investors, limiting ability to raise capital by equity financing in the future. Debt financing can also increase the vulnerability of the business during hard times (though it seems Winfield was not greatly affected by the recent recession). Debt can also make it difficult for the company to grow, as the cost of repaying the loan is vital to the business. Company assets can be held as collateral and owner of Winfield maybe personally require guarantee of the loan.
Winfield’s net income was $27million. With the Acquisition of MPIS and its $15 million net income, the business can expect a $42 million net income. The company’s current debt-to-equity ratio is 50:50. First option is to issue debt with an annual 6.5% interest

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