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Winfield Refuge

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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 price of $17.75/share.
During the board meeting, there was no consensus on the mode to secure the funding. While Andrea Winfield and Joseph Winfield thoughts that issuing stock is a better option; Ted Kale, Joseph Tendi, and Naomi Ghonche did not prefer the approach of issuing stock. James Gitanga, the newest addition to the board was apparently in favor of raising long term debt through bonds.
Here is each director’s assessment of financial decision and our response to that:
Andrea Winfield
Andrea thinks that stock issuing has a lower cost. Issuing a bond will result in additional cash outlay of 6.25 million per year as principal repayment. Andrea is reacting to the long term lease of 15.8 million (exhibit 3) and feels that additional cash outlay will result in risk increase leading to the wild swing in stock price.
However, this concern looks misplaced as the overall industry is stable and generate steady cash flow. Business demand is predictable and recession proof. In additional, currently Winfield does not have any Long Term liability whereas all other major players do have Longer term debt (exhibit 1) so adding some

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