International Plastic Design, Inc.

This case has three parts,

Part I

International Plastics Design's founder, Marion Cosby, developed a biodegradable plastic that her company is marketing to manufacturing companies throughout the southeastern United States.

International Plastic Design (IPD) provides custom plastic injection molding solutions for companies whose plastic products and components require critical tolerances and exacting specifications. In her recent meeting with the companies customers, Marion Cosby stated that our team of experts works closely with you with a focus on your unique needs and finding the global plastic solution that is the best match. She continued to say that our philosophy is to be a leading supplier of custom injection molded products by providing on-time deliveries and competitive international pricing through continual improvement and manufacturing innovations and exceeding our customers' expectations every time. Our specialty is Manufacturing and delivering injection molded plastic parts and components internationally and domestically. Our expert molders and 24/7 lights-out manufacturing capabilities allow us to provide products quickly and accurately to all aspects of the United States and globally. IPD matches the most cost-effective means of production with each part, family of parts, or complete assembly of products to bring the customer the lowest cost of ownership. Our experienced tooling department personnel use their decades of combined experience to ensure the most precise tooling results available.

Overall, IPD experienced strong demand for its products, resulting in increased net sales and net income during the first quarter of 2023. The company is considering raising capital for its new division. As the company's chief financial officer, you must consider how and what sources of capital you must raise the money. You remember in your finance classes that the company can raise capital in several ways.

Question 1: What sources of capital could be considered, and how to raise the funds?

Question 2: Should the costs of the funds be a before-tax or an after-tax basis?

Question 3: What are the two primary ways companies raise common equity?

Question 4: Why is there a cost associated with reinvested earnings?

Question 5: Recommend the company's capital cost based on your answers in questions 1-4.

Question 6: If you recommend the weighted average cost of capital, indicates what factors influence a company's WACC.

Question 7: What four common mistakes in estimating the WACC should be avoided?

Part II

IPD is a private company considering going public to raise money for its new division. However, the company needs to know what its cost of capital would be.

As the company's chief financial officer, you consider raising the capital based on a target capital structure, as shown in the table below.

Target Capital Structure	Weight
Long-term debt	20%
Common stock equity	80%
Total	100%

IPD can raise debt by selling 20-year bonds with a $1,000 par value and a 10.0% annual coupon interest rate. IPD's corporate tax rate is 30%. Because IPD is a growing firm that requires lots of cash to grow, it does not consider paying dividends to common stockholders. As a result, you have decided to use the capital asset pricing model (CAPM) to estimate the cost of common stock. However, it would help if you calculated the beta for the company. You decided to consult the firm's investment advisors to estimate the company's beta. The investment advisor suggested using comparable companies to estimate the beta and provided Table -1 about the comparable companies. The current 20-year Treasury yield is about 4% and the market risk premium is 6%.

1. What is the beta of the company?
2. Calculate IPDs current after-tax cost of long-term debt.
3. Calculate IPDs current cost of common stock.
4. Calculate IPDs current weighted average cost capital.

List of Comparable Companies	New Process Fiber Company, Inc.	Industrial Plastic Supply, Inc.	Liberty Plastics	Applied Plastics Co., Inc.	Advanced Industrial, Inc.	Redwood Plastics and Rubber	National Plastics & Seals, Inc.	Fix Supply
Market Cap (in Billions)	5.02	2.68	2.8	2.56	6.52	1.35	5.16	9.29
Enterprise Value (in Billions)	10.55	10.09	4	3.3	6.43	2.06	4.91	7.56
Trailing P/E	4.4	43.36	22.39	16.29	4.76	548.6	5.97	6.38
Forward P/E	4.85	10.19	12.42	13.21	1.75	17.95	16.39	12.68
Price/Sales	0.2	0.16	0.59	0.54	5.77	0.39	0.76	1.85
Price/Book	1.23	0.71	1.75	1.43	4.77	1.94	3.23	14.19
Enterprise Value/Revenue	0.42	0.56	0.8	0.69	5.73	0.56	1	1.95
Enterprise Value/EBITDA	4.13	9.58	8.51	10.15	3.01	8.96	3.66	17.4
Total Debt (in Billions)	6.4	7.57	1.37	1.12	1.07	1.22	1.550	6.74
Beta (5Y Monthly)	1.5	1.6	1.5	1.3	1.39	1.48	1.3	1.2
The data of the table is gathered from different sources and websites.

Part III

IPD is currently a private company and is considering going public to raise money for its new division.

Taking a company public through an initial public offering (IPO) can be a significant step for a private company to raise funds and increase its visibility in the market. If IPD is considering going public, there are several aspects to consider? What are the aspects of going public?