Mini Case Analysis #2
2
Mark Taylor and Jack Rodwell, owners of Tuxedo Air, have decided to expand their oper-
ations ad thus, have instructed their newly hired financial analyst, Ed Cowan, to enlist an under-
writer to help sell $35 million in new 10-year bonds to finance construction for the expansion
(Ross, Westerfield, Jordan, & Biktimirov, 2016).
Ed, has begun discussions with Suzanne
Lenglen, an underwriter from the firm of Raines and Warren, about which bond features Tuxedo
Air should consider and what coupon rate the issue will likely have, to best serve their goals of
expansion (Ross, et al., 2016).
Define the problem
Although Ed is aware of the bond features, he is however, uncertain about the costs and
benefits of some features, so he isn’t sure how each feature would affect the coupon rate of the
bond issue (Ross, et al., 2016).
Therefore, Suzanne has asked her assistant to prepare a memo to
Ed describing the effect of each of the following bond features on the coupon rate of the bond.
In addition, she has asked her assistant to list any advantages or disadvantages of each of the fol-
lowing features:
1.
The security of the bond—that is, whether the bond has collateral.
2.
The seniority of the bond.
3.
The presence of a sinking fund.
4.
A call provision with specified call dates and call prices.
5.
A deferred call accompanying the call provision.
6.
A Canada plus call provision.
