1. What is the expected value of the company in one year, with and without expansion? Would the company’s stockholders be better off with or without expansion? Why?
2. What is the expected value of the company’s debt in one year, with and without the expansion?
3. One year from now, how much value creation is expected from the expansion? How much value is expected for stockholders? Bondholders?
4. If the company announces that it is not expanding, what do you think will happen to the price of its bonds? What will happen to the price of the bonds if the company does expand?
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5. If the company opts not to expand, what are the implications for the company’s future borrowing needs? What are the implications if the company does expand?
6. Because of the bond covenant, the expansion would have to be financed with equity. How would it affect your answer if the expansion were financed with cash on hand instead of new equity?