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Running Head: MINI-CASE ANALYSIS #2
Mini Case Analysis # 2
Tuxedo Air Inc.
Define the problem
“A
bond
is generally a form of debt which the investors pay to the issuers for a defined
time frame” (What are Bonds? n.d.). Even though Ed is aware of the bond features, he is not
certain about the costs and benefits of the features. Moreover, he is not sure about the effect of
each feature to the coupon rate of the bond issue (Ross, et al., 2016).
For that reason, Suzanne
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MINI-CASE ANALYSIS #2
has asked me to prepare a memo to Ed describing the outcome of each of the following bond
features on the coupon rate of the bond.
Moreover, she has asked me to list any advantages or
disadvantages of each of the following features (Ross, et al., 2016).
Mark Taylor and Jack Rodwell, the owners of Tuxedo Air, want to expand their
operations. Therefore, they instructed their newly hired financial analyst, Ed Cowan, to enlist an
underwriter to help sell $35 million in new 10-year bonds to finance construction (Ross, et al.,
2016). Ed has entered into 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 (Ross, et al., 2016). As a result, Suzanne and Ed have to decide, which
bond will yield the highest returns that will help the company for the creation of their new
expansion project.
Alternative solutions to the problem
The advantages or disadvantages of each feature are:
- The security of the bond, that is, whether the bond has collateral.
- The seniority of the bond.
- The presence of a sinking fund.
- A call provision with specified call dates and call prices.
- A deferred call accompanying the above call provision.
- A Canada plus call provision.
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