Assess the financing proposals in terms of attractiveness in cost and associated risk. Please evaluate the following financing alternatives: bank loan, mortgage bond, common stock, preferred stock with warrants and convertible bond. Your analysis should consider qualitative and quantitative issues. Which financing option do you recommend for Rondo and why? Provide an executive summary analyzing your results, and make a recommendation.

1:04 PM Sat Nov 27 80%O Done MGT 6001 - F2.21 - Examples - Week 6 - Week 6 RONDO - FINANCING ALTERNATIVES RONDO FINANCING ALTERNATIVES 9/21/20 3:14 PM Annud Payments 2022 2023 Principal Amourt Term Int/Div Rate Princ Rpym! 2020 2021 2024 2025 Dilution to Common Bank Loan 10,000,000 5 11.50% 20.00% 0 01 1,150,000 -287,500 862,500 2,000,000 Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net interest rate 920,000 -230,000 690,000 2,000,000 2,690,000 6,000,000 8.62% 690.000 -172,500 517,500 2.000.000 460.000 -115.000 345,000 2.000.000 0 230,000 -57.500 172,500 2.000.000 0 o 2,862,500 8,000,000 8.62% 2,517,500 4,000,000 8.62% 2,345,000 2,000,000 8.62% 2,172,500 0 8.62% 0 0 8,00x),x0 10 9.XY% 10.00% Mortgage Bond Interest Tax benefit 25% Interest - net Principal rpymts 720,000 -180,000 576,000 -144,000 432,000 504,000 -126,000 378,000 432,000 -108,000 648,000 -162,000 486,000 800,000 360,000 -90,000 540,000 324,000 270,000 800,000 800,000 800,000 800,000 800,000 Total Payments Principal outstanding Net interest rate 1,340,000 7,200,000 6.75% 1,286,000 6,400,000 6.75% 1,232,000 5,600,000 6,75% 1,178,000 4,800,000 6,75% 1,124,000 4,000,000 6,75% 1,070,000 3,200,000 6.75% Convertible Bond 10,000,000 10 8.63% 0.00% 863.000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215.750 647,250 863,000 -215.750 863,000 -215,7501 647,250 647,250 Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net interest rate 0 0 0 0 0 0 647,250 647,250 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 10,000,000 10,000,000 6.47% Common shares issuable upon conversion 156,250 15.62% Preferred Stock 8,000,000 n/a 9.38% 0.00% Dividend 75014 7501 7504 750,400 750,400 750,400 1:05 PM Sat Nov 27 80%O Station Done MGT 6001 - F2.21 - Examples - Week 6 UV. TU TV.UUTO 504,000 720.000 -180,000 648,000 -162,000 486,000 576,000 -144,000 432,000 -126.000 432.000 -108,000 360,000 -90,000 540,000 378,000 324,000 270,000 muriyaye DUIT Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net Interest rate 800,000 800,000 800,000 800,000 800,000 800,000 1,232,000 1,340,000 7,200,000 6.75% 1,286,000 6,400,000 6.75% 5,600,000 6.75% 1,178,000 4,800,000 6.75% 1,124,000 4,000,000 6.75% 1,070,000 3,200,000 6.75% 10,000,000 10 0.00% Convertible Bond Interest Tax benefit 25% Interest - net Principal rpymts 863.000 -215,750 863,000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215.750 647,250 863.000 -215.750 863.000 -215,7501 647,250 647,250 647,250 0 0 0 0 0 647,250 647,250 Total Payments Principal outstanding Net interest rate 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 10,000,000 6.47% 647,250 10,000,000 6.47% 0 647,250 10,000,000 6.47% 10,000,000 6.47% Common shares issuable upon conversion 156,250 15.62% 8,000,000 n/a 9.38% 0.00% Preferred Stock Dividend Tax benefit 0% Interest - net Principal rpymts 750.400 0 750,400 0 750,400 0 750.400 0 750.400 ol 750,400 ol 750,400 750,400 750,400 750,400 750,400 750,400 0 0 0 0 0 0 750,400 750,400 Total Payments Principal outstanding Net interest rate 750,400 8,000,000 9.38% 750,400 8,000,000 9.38% 750,400 8,000,000 9.38% 8,000,000 8,000,000 9.38% 750,400 8,000,000 9.38 Common shares issuable under warrant 104,000 10.40% Common Stock 8,00),CX00 New shares issued 150,943.996 15.09% Dividends per share 3.299 3.635 3.937 4.277 2.688 405.680 858 2.984 450,361.79 Totla dividends on new shares 497.937.949 548,640.953 594,230 349 645.589.547 Safari 1:04 PM Sat Nov 27 80%O MGT 6001 - F2.21 - Notes re Rondo - Week 6 Insert Draw Layout Review Home View Times New Roma B U A. This account does not allow editing on your device. For an account with full access, contact your organization about your subscription plan. Sign in MGT 6001 (Szlepcsik) Notes Re Rondo WEEK6 Rondo 8 - Financing Proposals Assumptions/Steps (Note - Assumptions/Steps 1 through 8 below are included for informational purposes only. The related calculations are already included in the tab/worksheet "RONDO - FINANCING ALTERNATIVES" included in the Examples - Week 6 Excel file/workbook): 1. Perform the analysis as of 12/31/2019. 2. Ignore the Poly Pipe purchase (use the amount offered without the Poly Pipe purchase for the Mortgage Bond and Preferred Stock alternatives). 3. For the Common Stock alternative, assume that Rondo needs to raise $8 million net proceeds (atter underwriting costs). 4. Calculate the annual payments to be made for each of 2020 through 2025 for each of the 5 potential funding sources. The annual payments include (1) interest or dividends, as appropriate, net of any applicable tax bencfit, plus (ii) any scheduled principal repayments. As a refresher, Chapter 9 (Cost of Capital) discusses which types of capital receive a tax benefit. 5. Regarding the preferred stock - Calculate the annual dividends, net of any applicable tax benefit, and determine what the net (after-tax) coupon rate is. Also calculate what the dilution to common shareholders would be, by way of number of new shares and as a % of shares currently outstanding, if the warrants were exercised. 6. Based upon the interest/dividend portions of the above calculations, calculate the after-tax cost of each alternative. Also, based upon the above, calculate total annual payments. 7. Refer to Rondo's forecast we covered earlier in the course and consider whether, or not, Rondo will be able to make the required annual payments. 8. Where applicable for a potential funding source, calculate dilution (or potential dilution) to Rondo's existing common shareholders. ASSIGNMENT DELIVERABLE: Executive Summary - RANK the potential funding sources from 1st through Sth choices, and DISCUSS WIIY. Be sure to discuss the pros and cons of each potential funding source and your reasoning for your ranking. There is no one correct answer. It's your reasoning/logic that matters. 1:04 PM Sat Nov 27 80%O Done MGT 6001 - F2.21 - Examples - Week 6 - Week 6 RONDO - FINANCING ALTERNATIVES RONDO FINANCING ALTERNATIVES 9/21/20 3:14 PM Annud Payments 2022 2023 Principal Amourt Term Int/Div Rate Princ Rpym! 2020 2021 2024 2025 Dilution to Common Bank Loan 10,000,000 5 11.50% 20.00% 0 01 1,150,000 -287,500 862,500 2,000,000 Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net interest rate 920,000 -230,000 690,000 2,000,000 2,690,000 6,000,000 8.62% 690.000 -172,500 517,500 2.000.000 460.000 -115.000 345,000 2.000.000 0 230,000 -57.500 172,500 2.000.000 0 o 2,862,500 8,000,000 8.62% 2,517,500 4,000,000 8.62% 2,345,000 2,000,000 8.62% 2,172,500 0 8.62% 0 0 8,00x),x0 10 9.XY% 10.00% Mortgage Bond Interest Tax benefit 25% Interest - net Principal rpymts 720,000 -180,000 576,000 -144,000 432,000 504,000 -126,000 378,000 432,000 -108,000 648,000 -162,000 486,000 800,000 360,000 -90,000 540,000 324,000 270,000 800,000 800,000 800,000 800,000 800,000 Total Payments Principal outstanding Net interest rate 1,340,000 7,200,000 6.75% 1,286,000 6,400,000 6.75% 1,232,000 5,600,000 6,75% 1,178,000 4,800,000 6,75% 1,124,000 4,000,000 6,75% 1,070,000 3,200,000 6.75% Convertible Bond 10,000,000 10 8.63% 0.00% 863.000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215.750 647,250 863,000 -215.750 863,000 -215,7501 647,250 647,250 Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net interest rate 0 0 0 0 0 0 647,250 647,250 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 10,000,000 10,000,000 6.47% Common shares issuable upon conversion 156,250 15.62% Preferred Stock 8,000,000 n/a 9.38% 0.00% Dividend 75014 7501 7504 750,400 750,400 750,400 1:05 PM Sat Nov 27 80%O Station Done MGT 6001 - F2.21 - Examples - Week 6 UV. TU TV.UUTO 504,000 720.000 -180,000 648,000 -162,000 486,000 576,000 -144,000 432,000 -126.000 432.000 -108,000 360,000 -90,000 540,000 378,000 324,000 270,000 muriyaye DUIT Interest Tax benefit 25% Interest - net Principal rpymts Total Payments Principal outstanding Net Interest rate 800,000 800,000 800,000 800,000 800,000 800,000 1,232,000 1,340,000 7,200,000 6.75% 1,286,000 6,400,000 6.75% 5,600,000 6.75% 1,178,000 4,800,000 6.75% 1,124,000 4,000,000 6.75% 1,070,000 3,200,000 6.75% 10,000,000 10 0.00% Convertible Bond Interest Tax benefit 25% Interest - net Principal rpymts 863.000 -215,750 863,000 -215,750 647,250 863.000 -215,750 647,250 863.000 -215.750 647,250 863.000 -215.750 863.000 -215,7501 647,250 647,250 647,250 0 0 0 0 0 647,250 647,250 Total Payments Principal outstanding Net interest rate 647,250 10,000,000 6.47% 647,250 10,000,000 6.47% 10,000,000 6.47% 647,250 10,000,000 6.47% 0 647,250 10,000,000 6.47% 10,000,000 6.47% Common shares issuable upon conversion 156,250 15.62% 8,000,000 n/a 9.38% 0.00% Preferred Stock Dividend Tax benefit 0% Interest - net Principal rpymts 750.400 0 750,400 0 750,400 0 750.400 0 750.400 ol 750,400 ol 750,400 750,400 750,400 750,400 750,400 750,400 0 0 0 0 0 0 750,400 750,400 Total Payments Principal outstanding Net interest rate 750,400 8,000,000 9.38% 750,400 8,000,000 9.38% 750,400 8,000,000 9.38% 8,000,000 8,000,000 9.38% 750,400 8,000,000 9.38 Common shares issuable under warrant 104,000 10.40% Common Stock 8,00),CX00 New shares issued 150,943.996 15.09% Dividends per share 3.299 3.635 3.937 4.277 2.688 405.680 858 2.984 450,361.79 Totla dividends on new shares 497.937.949 548,640.953 594,230 349 645.589.547 Safari 1:04 PM Sat Nov 27 80%O MGT 6001 - F2.21 - Notes re Rondo - Week 6 Insert Draw Layout Review Home View Times New Roma B U A. This account does not allow editing on your device. For an account with full access, contact your organization about your subscription plan. Sign in MGT 6001 (Szlepcsik) Notes Re Rondo WEEK6 Rondo 8 - Financing Proposals Assumptions/Steps (Note - Assumptions/Steps 1 through 8 below are included for informational purposes only. The related calculations are already included in the tab/worksheet "RONDO - FINANCING ALTERNATIVES" included in the Examples - Week 6 Excel file/workbook): 1. Perform the analysis as of 12/31/2019. 2. Ignore the Poly Pipe purchase (use the amount offered without the Poly Pipe purchase for the Mortgage Bond and Preferred Stock alternatives). 3. For the Common Stock alternative, assume that Rondo needs to raise $8 million net proceeds (atter underwriting costs). 4. Calculate the annual payments to be made for each of 2020 through 2025 for each of the 5 potential funding sources. The annual payments include (1) interest or dividends, as appropriate, net of any applicable tax bencfit, plus (ii) any scheduled principal repayments. As a refresher, Chapter 9 (Cost of Capital) discusses which types of capital receive a tax benefit. 5. Regarding the preferred stock - Calculate the annual dividends, net of any applicable tax benefit, and determine what the net (after-tax) coupon rate is. Also calculate what the dilution to common shareholders would be, by way of number of new shares and as a % of shares currently outstanding, if the warrants were exercised. 6. Based upon the interest/dividend portions of the above calculations, calculate the after-tax cost of each alternative. Also, based upon the above, calculate total annual payments. 7. Refer to Rondo's forecast we covered earlier in the course and consider whether, or not, Rondo will be able to make the required annual payments. 8. Where applicable for a potential funding source, calculate dilution (or potential dilution) to Rondo's existing common shareholders. ASSIGNMENT DELIVERABLE: Executive Summary - RANK the potential funding sources from 1st through Sth choices, and DISCUSS WIIY. Be sure to discuss the pros and cons of each potential funding source and your reasoning for your ranking. There is no one correct answer. It's your reasoning/logic that matters