Continental Carriers Inc.

...

Midland Freight, Inc. a company freight commons Chicago Michigan and Indiana operates is emerging as the perfect candidate. The similarity between the business culture of both companies made sense to the directory that this was a interest possibility. Along with this, both the marketing program as the program of cost reduction that these companies shared were quite suitable for the acquisition of the company so directory which unanimously approved of the merger.

Continental Carriers, Inc. Financing Policy

The company through time to consistently followed a policy of avoiding long-term debt. meeting their financial needs it is made through the use of retained earnings plus the proceeds of the offering of shares and short-term loans, which are not as frequently.

As we can see on the balance sheet of the company is not detailed not incur long-term debt and management style of the company is foreign to this use of financial instruments.

Economic Context

The economic context in which this case moves is in the late eighties, the US economy is experiencing a strong Bull Market, where there is a expansion of markets marked by strong economic activity. Inflation is controlled by the central bank with a range of 4.14% and The interest rate of the FED is in 6.5% which we consider it is a fairly attractive rate with respect to the past years.

[pic 1]

Industry Deregulation

In the context of the case the company Continental Carriers, Inc. operates in an industry, which had been regularized in the past. The new changes and deregulation of the industry had lowered the barriers to entry for new competitors also decreased the cost of doing business.

These changes had attracted new entrants to the market, which led to an oversupply in the industry, which subsequently resulted in a fall in prices and therefore was reflected in the performance of the share price of Continental Carriers, Inc. in the last period.

Continental Carriers, Inc. Alternatives

The board of the company must finance the acquisition of US $ 50,000,000 of Midland Freight, Inc. currently being analyzed three possible financing alternatives:

- Common Stock: 3 million new shares, $17.75 per share and a dividend rate of $1.50.

- Debt: $50 million in bonds; interest= 10%, period= 15 years.

- Issue Preferred Stock: 500,000 shares with a dividend of $10.50, par value of $100.