Continental Carriers - Continental Carriers Continental...

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Continental Carriers Continental Carriers, Inc. Advanced Financial Management Continental Carriers, Inc. (CCI) should take on the long-term debt to finance the acquisition of Midland Freight, Inc. for a few reasons. The company is heavy on assets, the debt ratio will only grow to 0.40 with the added $50M in debt. Also, the firm will benefit from an added $2M in a tax shield and be able to return $12.7M a year to its stockholders and investors , instead of $8.9M if equity is raised to finance the acquisition. Lastly, the stock price and earnings per share will increase to $3.87 in comparison to an equity-financed acquisition of $2.72 per share. CCI would be taking a somewhat high risk by issuing additional stock due to the uncertainty about the offering price. Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering Is this essay helpful? Upgrade your account to read more and access more than 600,000 just like it! GET BETTER GRADES prices are too low. Although long-term debt is a better financing choice a few of the drawbacks are pointed out. Debt holders claim profit before equity holders, so the chance that profits may be lower than expected, increases risk to equity may reduce or impede stock value. However, in extreme financial situations such as a recession period, CCI would still be able to increase its cash during a recession period with all debt capital structure. Also, there is a remaining 12.5 million that would have to be paid at the expiration of the bonds, but that could be paid off by issuing new bonds or additional equity at that time. Five members of the board raised comments that have been addressed as follows: 1. The argument of the debt financing being a risky venture since the proposition was to pay out to a sinking fund does not make sense. Over the course of the next seven years, CCI had a historical growth in revenue of 9%. This growth along. .. . Introduction
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Continental Carriers Inc is a trucking company which focuses in carrying generalcommodities. From the start of its operation in 1952, the company manages within thedistrict of the Pacific Coast and from Chicago to various places in Texas. They attainedfew short term loans resulting from a low debt policy and evading long term debt. The company obtained its profitability and internal growth from the time that Mr. John Evanswas appointed as President of the company. He focused on rigorous marketing andhigh- tech operations. Because of this, the company became known in the truckingindustry as a widely profitable key performer because of its unremitting revenues anddeclining operating costs.Because of the president’s eagerness to preserve and develop the company’sprofitability, he supported the acquisition of Midland Freight, a common carrier servingMichigan and Indiana from Chicago expecting that it would expand
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Continental Carriers - Continental Carriers Continental...

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