Continental Carriers is a general commodity motor carrier and has been since 1952, and they recently experienced successful growth since Mr. Evans focused on improving service, as well as an extensive marketing effort to boost their revenues in their already existing routes. He also implemented a way to reduce costs through computerization of operations as well as an improvement in terminal facilities to improve the company’s structure. This has since made CCI become a much larger company and has become extremely profitable by posting an income after taxes of $15.36 million dollars alone in the year of 1988 of and is now looking to expand. Ms. Thorp, the treasure of CCIs now proposed an acquisition of Midland Freight Inc. to expand their business by 50% and increase their EBIT by 8.4 million dollars per year. They have ran into the problem whether to finance solely on debt or by issuing common stock to obtain the 50 million dollars in cash they need to acquire Midland Freight Inc. The directors of the company have selected Midland Freight, Inc which they believe would fit seamlessly with their current operations, the agreed acquisition price is $50 million in cash which would have to be financed externally. The purpose of this analysis is to analyze financing strategies for CCIs acquisition of Midland Freight and decide which would be in the best interest of Continental Carriers, Inc and its stakeholders.
Ms. Thorp has proposed two financing options that she has found suitable for their current situation, both of which she finds plausible for the company to be able to execute in a timely manner. Ms. Thorp believes that if they choose to issue common stock and issue it at $16.75 with a dividend of 1.50 it could possibly dilute the stock and cost CCI by more than 9% but has proposed this as one of the potential strategies. She has also proposed that they could sell 50 million dollars in bonds and finance through long-term debt, which...
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