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    Regal Cars Has Been Manufacturing Exotic Automobiles For More Than

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    Taimour Hassan
    Regal Cars has been manufacturing exotic cars for over 50 years and wants to automate production to meet increasing demand. The president is considering three debt financing options to raise $1 million: 1) A 10-year bank loan at 12% interest. 2) Issuing 10-year, 10% bonds. 3) A 10-year equipment lease requiring $104,000 annual payments. The memo will discuss how each option affects the company's financial statements and other considerations for the financing decision.

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    Regal Cars Has Been Manufacturing Exotic Automobiles For More Than

    Uploaded by

    Taimour Hassan
    54 views1 page
    Regal Cars has been manufacturing exotic cars for over 50 years and wants to automate production to meet increasing demand. The president is considering three debt financing options to raise $1 million: 1) A 10-year bank loan at 12% interest. 2) Issuing 10-year, 10% bonds. 3) A 10-year equipment lease requiring $104,000 annual payments. The memo will discuss how each option affects the company's financial statements and other considerations for the financing decision.

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    Regal Cars Has Been Manufacturing Exotic Automobiles for More Than

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    Regal Cars has been manufacturing exotic cars for over 50 years and wants to automate production to meet increasing demand. The president is considering three debt financing options to raise $1 million: 1) A 10-year bank loan at 12% interest. 2) Issuing 10-year, 10% bonds. 3) A 10-year equipment lease requiring $104,000 annual payments. The memo will discuss how each option affects the company's financial statements and other considerations for the financing decision.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    54 views1 page

    Regal Cars Has Been Manufacturing Exotic Automobiles For More Than

    Uploaded by

    Taimour Hassan
    Regal Cars has been manufacturing exotic cars for over 50 years and wants to automate production to meet increasing demand. The president is considering three debt financing options to raise $1 million: 1) A 10-year bank loan at 12% interest. 2) Issuing 10-year, 10% bonds. 3) A 10-year equipment lease requiring $104,000 annual payments. The memo will discuss how each option affects the company's financial statements and other considerations for the financing decision.

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    Regal Cars has been manufacturing exotic automobiles for

    more than #3813


    Regal Cars has been manufacturing exotic automobiles for more than 50 years. It has always
    prided itself on its top-quality products and high levels of customer satisfaction. All Regal Cars
    are hand-built to the purchasers' individual specifications. In the past year, the popularity of
    Regal Cars has increased dramatically following a promotional campaign in which Regal
    provided complimentary cars to star members of the local NHL team. To meet the increasing
    demand, Mark Quaid, the president and largest shareholder of Regal Cars, is considering
    partially automating the production line.To finance the conversion of the manual production line
    to a robotic system, Quaid will have to raise more than $1 million in capital. The company has
    been in the Quaid family for more than 50 years and Mark is unwilling to sell shares and risk
    diluting his family's equity in the business. As an alternative to equity financing, he has identified
    three potential sources of debt financing and has asked you to explain how each option would
    affect the company's financial statements.Option 1—Bank loanA national bank has offered to
    lend Regal the necessary funds in the form of a 10-year, 12% bank loan. Annual payments of
    $100,000 plus interest will be required. Because of the loan's size, the bank would require Mark
    Quaid to personally guarantee the loan with a mortgage on the family estate.Option 2—Bond
    issueRegal can issue 10-year, 10% bonds for the amount required. Currently, similar bonds in
    the market are providing a return of 10%.Option 3—LeaseRegal can lease the equipment. The
    lease would require annual payments of $104,000 over a 10-year lease period. The present
    value of these payments, at an annual interest rate of 8%, would be $697,850. The equipment
    is expected to have a useful life of 12 years and to be worth about $100,000 at the end of the 10
    years.Required:Prepare a memo to Mark Quaid discussing how each of these options would
    affect the company's financial statements. You should also include in your memo any other
    pertinent observations that could influence the financing decision he has to make.View Solution:
    Regal Cars has been manufacturing exotic automobiles for more than

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