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Continental Carriers, Inc.

Advanced Financial Management

Continental Carriers, Inc. (CCI) should take on the long-term debt to
finance the acquisition of Midland Freight, Inc. for a few reasons.
The company is heavy on assets, the debt ratio will only grow to 0.40
with the added $50M in debt. Also, the firm will benefit from an
added $2M in a tax shield and be able to return $12.7M a year to its
stockholders and investors, instead of $8.9M if equity is raised to
finance the acquisition. Lastly, the stock price and earnings per
share will increase to $3.87 in comparison to an equity-financed
acquisition of $2.72 per share. CCI would be taking a somewhat high
risk by issuing additional stock due to the uncertainty about the
offering price. Having a low P/E ratio with respect to the rest of
the market, and the replacement cost of the firm being greater than
its book value (argument 3), there is a good chance that the current
stock price and the......

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Approximate Word Count: 905
Approximate Pages: 4 (250 words per double-spaced page)

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