Question:

a) What are the pros and cons of each of the three financing alternatives given in the case?

b) Which alternative did you choose? Why? Provide qualitative support for your answer.

Financing Options Three options were available for Amtrak to gain use of the equipment: (1) borrow money to fund the purchase, (2) lease the equipment from a financial institution such as BNYCF, or (3) rely on federal sources for funding. Borrow and buy A major bank had offered to underwrite a bond issuance for Amtrak with a 20-year term at 6.75% per annum. This arrangement would call for Amtrak to make semiannual payments of $12.303 million, beginning in December 1999. The locomotives and train sets would serve as collateral for the loan. A member of the Treasury staff suggested that one drawback to this alternative was that Amtrak had recently issued debt-as such, the public market might already be saturated with Amtrak paper.