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Assumptions/Steps (Note–work file RONDO FINANCING ALTERNATIVES excel attached):
1. Perform the analysis as of 12/31/2019.
2. Ignore the Poly Pipe purchase (use the amount offered without the Poly Pipe purchase for the Mortgage Bond and Preferred Stock alternatives).
3. For the Common Stock alternative, assume that Rondo needs to raise $8 million net proceeds (after underwriting costs).
4. Calculate the annual payments to be made for each of 2020 through 2025 for each of the 5 potential funding sources. The annual payments include (i) interest or dividends, as appropriate, net of any applicable tax benefit, plus (ii) any scheduled principal repayments.
5. Regarding the preferred stock – Calculate the annual dividends, net of any applicable tax benefit, and determine what the net (after-tax) coupon rate is. Also calculate what the dilution to common shareholders would be, by way of number of new shares and as a % of shares currently outstanding, if the warrants were exercised.
6. Based upon the interest/dividend portions of the above calculations, calculate the after-tax cost of each alternative. Also, based upon the above, calculate total annual payments.
7. Refer to Rondo’s forecast and consider whether, or not, Rondo will be able to make the required annual payments.
8. Where applicable for a potential funding source, calculate dilution (or potential dilution) to Rondo’s existing common shareholders.
Executive Summary – RANK the potential funding sources from 1st through 5th choices, and DISCUSS WHY. Discuss the pros and cons of each potential funding source and reasoning for ranking.