Essay on Business Management, Inc. : Raising Debt Vs. Equity
Winfield Refuse Management, Inc. is a regional waste management company in the Midwest. The company was facing pressure from larger competitors of the industry consolidation. As of result, it wanted to acquire Mott-Pliese Integrated Solutions (MPIS) to maintain a competitive position in the industry. The management team believed that the acquisition will improve the cost position from revenue synergies and cost reduction opportunities as well as provide an expansion opportunity into the mid-Atlantic region. Also, they believed that debt finance for MPIS acquisition was the best-fit. However, the company had the policy of avoiding long-term debts. Consequently, several board members expressed concerns about the impact of debt and equity financing on the performance of the company. With no conclusion among the board members in March meeting, the management team must prepare and address all concerns in the June board meeting. The financing alternatives for June board meeting are as follows.
Equity: If the company finance the acquisition by issuing more equity, it would need to sell 7.5 million new shares @ $17.75 and keep perpetual dividend payments of $1.00 per share. The actual cash outflows are $7.5 million every year going forward.
Debt & Equity: If the company finance the acquisition by issuing 25% equity and 75% debt, it would need to sell 1.87 million new shares @ $17.75 and keep perpetual dividend payments of…