After Dan’s EFN analysis for East Coast Yachts, Larissa has decided to expand th

Question

After Dan’s EFN analysis for East Coast Yachts, Larissa has decided to expand the company’s operations. She has asked enlist an underwriter to help sell $40 million in new 20 –year bonds to finance new construction. Dan has entered into discussions with Renata Harper, an underwriter from the firm of Crowe & Mallard, about which bond features East Coasts Yachts should consider and also what coupon rate issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature would affect the coupon rate bond issue.

7.After consideration all the relevant factors, would you recommend a zero coupon issue or a regular coupon issue? Why?
Would you recommend an ordinary call feature or a make –whole call feature? Why?

East Coast Yachts Income Statement 2010
Sales $617,760,000
COGs $435,360,000
Selling, General, and Administrative $73,824,000
Depreciation $20,160,000
EBIT $ 88,416,000
Interest expense $ 11,112,200
EBT $ 77,304,000
Taxes $ 30,921,600
Net Income $46,382,400
Dividends $17,550,960
Retained earnings $28,831,440

Balance Sheet 2010
Current Assets Current Liabilities
Cash and equivalents $11,232,000
Accounts payable $24,546,000
Accounts receivable $20,208,000
Notes payable $ 18,725,000
Inventories $22,656,000
Accrued expenses 6,185,000
Other $1,184,000
Total current liabilities $49,456,000
Total current assets $55,280,00
Fixed Assets Long term debt $146,560,000
Property,plant,and equipment $462,030,000
Total long term liabilities$ 146,560,000
Less accumulated depreciation ($114,996,000)
Net property,plant,and equipment $347,034,000
Intangible assets and others $6,840,000
Shareholders’ equity Total fixed assets $353,874,000
Preferred Stock $3,000,000
Common Stock $40,800,000
Capital Surplus$31,200,000
Accumulated retained earnings$186,138,000
Less treasury stock($48,000,000)
Total equity $213,138,000
Total assets $409,154,000
Total liabilities and shareholders’ equity $409,154,000

*****If information about the lower, median and upper quartiles is needed I can add that information.*******

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