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Management Inc.
Raising Debt vs. Equity
Ashish Gupta
Amit Singh
Amit kr Sinha
Maneesh D Singh
Prem Kumar
Gaurav Kr. Singh
Executive Summary
Objective
Alternatives
Recommendation
Joseph Winfield
Ted Kale
Market price is too low (based on Price-tobook comparable). Issuing shares at low price
and loss of management control is a
disservice to current stockholders.
Joseph Tendi
James Gitanga
Introduction
Net Income
$27M
Net Income
+
$15M
Net Income
=
$42M
Region
Region
Region
Midwest
Mid-Atlantic &
Midwest
$500
$50
$400
$40
$300
$30
Revenue ($M)
$200
$100
$0
2006
$10
2007
2008
2009
2010
2011
$0
2012E
Industry: Debt-to-Equity
Equity
50%
Debt
50%
Financing Alternatives
Capital Needs: $125M
1. Debt with Fixed Principal
Repayments
15 years
6.5% interest rate
$6.25M annual principal
payment
2.
Debt
15 years
6.5% interest rate
Full principal paid at Year 15
Debt Schedule
Principal Interest
140
Principal Interest
45
40
120
35
30
100
25
80
37.50
20
15
125.00
60
40
10 6.25
6.25
2.44
5 8.13
0
20
08.13
Year
Year
Dividend
180
160
140
120
100
Cash Outflows ($M)
80
60
40
20
0 7.50
Year
Decision Criteria
Impact on Firm:
Total Cost of Financing
Impact on Shareholders:
Earnings Per Share
Cost of Financing
205.00
200.00
195.00
190.00
Column1
Debt with Full
principal
repayment
185.00
180.00
175.00
170.00
165.00
160.00
Cost of Financing
Equity
Pros
No impact on shares
No impact on earnings
Cons
Reduced earnings by
interest
Increased number of
shares
Expected
EPS
$3.50
$ 2.51
$1.91
$3.00
$2.50
EPS (Debt)
$2.00
Earnings
$1.50 Per Share
EPS(Equity)
Expected
EBIT of
66M
$1.00
$0.50
$0.00
EBIT ($M)
EPS (Debt+Equity)
EPS(Bond with principal repayment)
Debt financing options provide the highest expected EPS under likely
EBIT scenarios.
Winfield Refuse Management
10
$1.50
$1.00
$0.50
$0.00
Expected
EBIT of
66M
EPS(Equity)
EBIT ($M)
11
Final Verdict
12
Decision Criteria
Debt
Debt with
Principal
Repayment
Equity
Cost of Financing
Expected EPS
13