CASE STUDY 8: WINFEILD REFUSE

MANAGEMENT, INC.: RAISING DEBT Vs EQUITY

BY: M NEHA REDDY
MBA 1ST YEAR

1. Ans.
The annual financial cost of a standard stock issuance is $7.5 million. [7.5
million bids multiplied by $1.00 per share is $7.5 million]
The annual financial expenses associated with the security problem are
$11.531 million. This would be determined by doing the following steps:
[$125 million bond *.065 = $8.125 million interest payments] [$8.125
million * (1 -.35) = $5.281 million in interest payments before taxes]
[$5.281 million plus $6.25 million in annual head reimbursement =
$11.531 million]
According to Sheene, the annual cash cost for giving shares is 6%. This is
calculated by doing the following steps: [7.5 million divided by 125
million Equals 0] .06] When the primary reimbursements are taken into
account, the money expenditure for security is 9.22 percent. This is
calculated by doing the following steps: [11.531 million divided by 125
million= .0922]

2. Ans.
Andrea Winfield Response: I agree with Andrea when she says that the
yearly head refund should be computed on the basis that they are true
money outpourings. If the business generates enough and consistent
money to cover the security installments, then the Her subsequent point is
fairly invalid. While it is true that the stock costs would swing if the total
obligation trouble was high, working income was questionable, and the
obligation inclusion proportion was low, this isn't true for Winfield, so
her subsequent point adds nothing to the supporting choice.
Joseph Winfield  Response: He claims that MPIS will pay for itself.
Joseph is true that the acquisition would have no effect on the earnings of
the present investors, but he believes it is an unrealistic assumption that is
incorrect. This is because the bond offering includes the possibility of an
increase in investor returns. Obviously, Joseph may be biased, which will
cause him to be more moderate while making a decision.
Ted Kale Response:  Ted Kale does not believe that the new normal
inventory must be delivered. He admits that Winfield's inventory is
undervalued and that management's influence over the company may be
compromised. For Kale's main argument about Winfield stock being
underestimated, I believe it's really difficult to tell in 2012 since it would
appear genuine in 2008 because to the financial crisis, but judging it as
still being undervalued in 2012 is difficult to agree on. Kale's second
claim is that responsible ordinary inventory would reduce the executive's
manager. Winfield owns 79 percent of the common shares, with 7.5
million new offers being provided to the cutting-edge 15 million,
resulting in consolidated management of 53 percent if the brand new
offers went to doors, economic backers. This concern that Kale expresses
is a significant issue in the field of electricity and should be addressed
accordingly. Over time, living in the capital rate that Winfield raises
should be accomplished via responsibility.
Naomi Gnoche and Joseph Tendi Response: These chiefs agree with Kale
about now having no choice except to deliver fresh common stock. They
claimed that it ought to be expected as EPS rather than book
worth.Supporting the securing with responsibility may result in returns to
current investors. Tendi claims that crucial head reimbursements are
negligible, which may mislead. Reimbursements certainly recall cash
outpourings that will not be reinvested within the business. The fear is
that missing these payments would cause financial hardship and anxiety.
Their inclusion share of 5.0 is impressive, but it appears that making
those reimbursements and boosting investor confidence may be
sufficient. 
James Gitanga  Response: James finds it thrilling that Winfield takes no
long-term accountability for its financial performance. James declares
that commercial enterprise is underleveraged. If you look at a 125 million
dollar bond offering for MPIS, the repercussions for the commitment to
value share may be as follows: (145,257,000 surplus + 523,295,000
retained earnings)/(145,257,000 surplus + 523,295,000 retained earnings)
= 0 21.On the basis of the opposing corporation's duty to cost proportions
veering toward zero. Despite the safety certification, Winfields 6-1.Five
portion is quite moderate.

3. Ans,
Control: Because the family, the executives, and the majority of the
proprietors are all in agreement regarding MPIS, the greatest challenge
they may face is if they weaken ownership to provide more bids. The
investors would then have more control over the company. Everything
that is represented in the present Winfield is fully addressed.
Adaptability: The emphasis on avoiding long-term responsibilities, along
with Winfield's positive revenue, suggests that they have a lot of
flexibility in deciding what to do next.
Pay: Given the options available, Winfield's best option is to begin
obligation support. If they were to grant more standard stock, it would
undermine them as well as their control over the organisation. Obligation
support would increase the overall value and unpredictability of their
EPS, which would benefit them in the long run.
Risk: Debt financing will cause the accumulation of obligation; the risk
of this is that if they miss credit payments, they will be in a bad situation.
Nonetheless, there are significant areas of strength for a for obligation
finance, and they appear to be confident that they can avoid the risk
associated with it.