The Presentation discusses the High Rock Industries Case for capital financing decisions using Ratio Analysis and

1. HIGH ROCK INDUSTRIES CASE Rohan Raj Mishra PFM 09-11 IIFM Bhopal

2. Brief Summary High Rock Industries (HRI) was engaged in purchase of underdeveloped acreage which was then developed for industrial use. “Crawford’s attention has been drawn to an area of land which is located on the west of Washington D.C. along the border shared by Maryland and Virginia.” HRI considered the asking price of $6 million to be most reasonable Crawford’s financial staff assured her of an increase in HRI’s earnings before interest and taxes (EBIT) of 20 percent

4. Commercial development in vicinity

5. Rapid Transit System

6. Revenue generating property

8. Balance Sheet

11. Ratios

12. Looking at TIC and Debt Ratio

14. Decision Criteria Future flexibility in terms of raising funds Risks (Leverage) Income (EPS,PAT) Cost of raising funds New Cost of Capital Market Value of the Shareholders Equity

15. Information and data are most useful in answering question 2 Net Income Return on Assets & Equity Debt Ratio Times Interest Coverage

16. The Question about Sinking Fund Affects Credit risk of the company Market rate of interest is imp. Criteria. Current rate is 7% Sinking fund investment with installment of $400,000 p.a.

17. Additional information that could be useful Effect of Equity Issue on Ownership Control Status of Capital Markets Trends of Interest rates Effect of raising debt on Company’s bond Attitude of Management and Shareholders towards Debt

18. Effect of Probability estimates of the EBIT level after purchase Probability estimate-Risk versus Uncertainty Decision Tree & EMV(Expected Monetary Value) & Mathematical Simulation

19. Additional Information from I-Banker Industry information on Bond ratings Debt-ratios Market conditions State of capital markets Interest rate trends

20. What flexibility in future after Debt financing? Debt ratio after Debt finance is 52% Scope for additional 3% From (31+x)/(59.5+x)=.55 ; X= $3.83 Million For given Debt ratio, financing options limited Debt up to $3.8 Million Common Equity Preferred Equity

22. As capital is raised, the choice among alternatives for raising capital in the future may be narrowed

23. Risk (Leverage, Times Interest Earned, ) and income (EBIT, EPS)