CASE:

Yldrm Engineering, Construction and Consulting company was established in 1992 by two partners who are friends from University. The company specializes in the construction of gas pipelines. The company has established a solid reputation in the market by successfully completing several projects that they have participated in recent years. In 2017, the Pipeline Industries Guild Award, which is one of the most prestigious awards in the Pipeline Construction Industry, was given to Yldrm Engineering because of their work at the TANAP project. In the TANAP project, they designed the route between Ardahan and Erzurum, difficult terrain with high mountains and deep valleys.

The companys area of expertise is the optimum-route calculation for pipelines. This is a highly technical job and requires a high degree of expertise. Route determination involves many aspects, such as pipelines design, construction, operation, and maintenance, which include the security of the pipeline, hydraulic and thermal conditions, environmental conservation, historical sites, soil and hydrological conditions, and construction requirements. For route optimization based on intelligence algorithm, the route programming of oil-gas pipelines mainly deals with the following factors: oil-gas production; oil-gas physical properties; the starting point and terminal of the pipeline; the starting and ending pressure of the pipeline; the areas that the pipeline goes through; heights of different places; land types (rocky soil, sandy soil, etc.); forest-covered area; source of water, rivers, roads, railroads, and impenetrable areas. The material and labor costs of pipeline construction; the pipes; regional regulation; constructing techniques; construction goal (usually minimum investment); and other factors influencing the pipeline construction.

The company is planning to expand its operations and to participate in projects outside Turkey. They are particularly interested in participating in the Trans-Himalaya gas pipeline, which will carry gas from eastern China to India via the Tibet plateau, which is considered as roof of the world.

For its new international expansion, Yldrm is planning to set up a new company, Yldrm International Engineering, that needs 50 million Euro of investment for new equipment and upgrading of their operations.

To finance its investment, the company is planning to apply for a loan. There are two options, a 10-year, and a 20-year term loan with fixed interest rates. The 20-year loan has a typically higher rate than the 10-year loan. The company can refinance its loan by paying back the outstanding balance and a penalty that is equal to 0.5% of the outstanding balance. By regulations, the company can do one refinancing in a year, and a decision regarding refinancing should be made at the beginning of the year. The company has also access to an emergency line of credit of 3 million Euro, but the interest on emergency loan is 20% per year.

The attached table gives estimated interest rates for the next 20 years. Based on the information provided in the case and the given interest rate table, determine the best financing and refinancing strategy for the company. Assume the risk-free interest rate is equal to 1/3 of the 10-year loan.

Annual Interest for 10- and 20-year loans
Year	10 Year Loan	20 Year Loan
1	6,2	6,9
2	7	7,8
3	6	7
4	5,3	6,7
5	9,1	9,5
6	9,9	10
7	11,1	13,4
8	11,5	12,8
9	10,2	12,4
10	9,4	10,1
11	7,5	10,3
12	5,5	7,2
13	4,3	4,6
14	2,9	5,1
15	1	2,4
16	1	3,8
17	2,2	4,9
18	3	4,2
19	3,8	7,7
20	3,7	6,1
21	4,7	6,9
22	5,1	5,4
23	5,7	8,8
24	6,9	7,5
25	5,7	6