CASE STUDY 2- Winfield Refuse Management. Management Case Study

CASE STUDY 2- Winfield Refuse Management
Name
Institution
Date
1. incremental annual cash outlays for the common stock issue?
The incremental annual cash outlays of each year for common stock issue it is the cash dividend payout on the new shares: 7.5 million shares x $1.00 dividend per share = $7.5 million
2013
As such the incremental outlay is $7.5, million
2030
Assuming that the dividends will be terminated on 2030
The value is $ 17.75 per share * 7.5 million shares $133.125 million plus the $ 7.5 million
2. Response to each director’s assessment of the financing decision
Andrea Winfield
Andrea pointed out that there would be $6.25 million cash outlay in the form of bond principal repayments. Using the stock option is more expensive at $ 7.5 million, and Andrea errs in arguing that the stock option is cheaper, yet the company can manage long-term debt and there will be increased ROE.
Joseph Winfield:
Joseph argued that there would be $15 million generated annually after taxes and supported the new stock issue rather than the bond like his niece Andrea. Joseph ignores that the debt cash flows will be for the 15 years, while stock dividends will be paid for longer
Ted Kale
To Ted the $17.75 per share price is low when compared to the competitors and Winfield is not getting a good deal. When compared to the competitors, Winfiled is less leveraged and the other firm’s capital structure differs and debt financing may be one of the reasons for the higher stock valuation. As such, there is a need to evaluate the performance of the competitors to identify the reasons behind the stock prices.
Joseph Tendi and Naomi Ghonch 
The directors prefer the debt finance option to issuing new stock as the EPS would increase to $2.51 compared to the stock value falling to $1.91 when new stocks are issued (Kester & Yong, 2012). However, the argument that principal repayment obligations are irrelevant in making decisions ignores that they affect the cash outflow.
James Gitanga
Winfield has low debt financing levels, but can afford to take long-term debt without jeopardizing its financial position just like other firms in the ...