Bio-Fuels Generation Incorporated (BFG) is a private company that produces biomass-based diesel fuel from feedstocks, including inedible corn oil, used cooking oil, and inedible animal fats. The diesel fuel is then sold to distributors.

The company is also actively involved in research into the production of other types of biomass-based fuels. Recently, the research team had a breakthrough and discovered a new production process that will produce fuel from algae at a relatively low production cost. The benefits of using algae as a feedstock for fuel production have long been known and include the fact that algae can be grown in large quantities in wastewater and can be genetically manipulated to produce many different types of fuel. But the main disadvantage to commercialization has been that algae production requires large amounts of water, nitrogen, and phosphorous, resulting in higher greenhouse gas emissions to produce algae than is saved by using it as a fuel, in addition to very high production costs. However, the BFG research team has recently discovered a process that will significantly reduce the amount of these inputs required, resulting in a very cost-effective production process.

BFG is owned by Eleanor Whiteman, a renowned scientist in the research of biomass-based fuels, and her husband, Michael Whiteman. Eleanor owns 300,000 common shares and Michael owns 100,000 common shares. Currently, the company has three directors on its board Eleanor, Michael, and Sherry LePage, a long-time friend. Sherry has a PhD in Biology, specializing in algae, and teaches at the local university. With her background and experience, Sherry advises on the research conducted at the firm. She is very interested in this project of using algae to produce fuel.

Eleanor is very excited about the research results because this has been her area of research for the past 20 years. BFG now needs financing to commercialize this algae production process. Michael is also excited about the company expanding into this area but has some concerns regarding how the financing should be raised and other finance issues affecting the company.

You currently work as a financial analyst for HRY Consultants Inc. BFG has hired your company in the past to assist with a variety of financial issues. Yesterday, Eleanor called you, asking about work she would like completed.

The following appendixes provide additional information about BFG and its financial position:

Appendix I 20X1 and 20X2 financial statements

Appendix II Current capital structure and financing proposals

Appendix III Assumptions for the capital budget analysis