$\quad$ $\quad$ $\quad$ $\quad$ $\quad$

question 14

Essay

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Nile Holdings
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Selected financial information as of Dec. 31,2014
$\begin{array}{lr}\hline \text { Last year's EBIT (2014) } & \$ 175.0 \text { million } \\\text { Expected EBIT (2015) } & \$ 189.8 \text { million } \\\text { Current portion of existing long-term debt, due } 2015 & \$ 34 \text { million } \\\text { Interest due in } 2015 \text { on existing debt } & \$ 36 \text { million } \\\text { Taxrate } & 35 \% \\\text { Common stock price per share } & \$ 50.00 \\\text { Common shares outstanding } & 20 \text { million } \\\text { Dividends per share } & \$ 2.00 \\\hline\end{array}$

-Please refer to the financial information for Nile Holdings above.Nile must decide how to finance a $100 million investment.Suppose Nile expects $4.52 in EPS next year if it does not go through with the investment and associated financing.As a shareholder,to satisfy its funding needs for the investment opportunity,do you prefer the company issue $100 million in new debt at an interest rate of 7% and a payment of $20 million due on the debt next year,or issue 2 million shares of equity at a target price of $50? Show supporting calculations,and provide arguments and potential counter-arguments for your recommendation.

---

Definitions:

Devise

In a will, a gift of real property.

Real Property

Property that includes the soil and any permanently bound fixtures to it, like constructions and arboreal elements.

Bequest

A gift left to someone in a will.

Personal Property

Moveable property that is not fixed permanently to one location, such as furniture, vehicles, and electronics, as opposed to real estate.