Need help with Corporate Finance questions on Capital Structure and choices. Pls. find the attached word doc with questions and the Form 10K for the GREENBRIER COMPANIES which Rail road company in USA.

V. CAPITAL STRUCTURE CHOICES What are the different kinds or types of financing that this company has used to raise funds? Where do they fall in the continuum betweendebt and equity? How large, in qualitative/quantitative terms, are the advantages to this firm from using debt? How large, in qualitative/quantitative terms, are the disadvantages to this firm from using debt? From the qualitative trade off, does this firm look like it has too much or too little debt? VI. OPTIMAL CAPITAL STRUCTURE Based upon the cost of capital approach, what is the optimal debt ratio for your firm? Bringing in reasonable constraints into the decision process, what would your recommended debt ratio be for this firm? Does your firm have too much or too little debt o relative to the sector? o relative to the market? Morningstar Document Research FORM 10-K GREENBRIER COMPANIES INC - GBX Filed: October 30, 2015 (period: August 31, 2015) Annual report with a comprehensive overview of the company The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 2015 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission File No. 1-13146 THE GREENBRIER COMPANIES, INC. (Exact name of Registrant as specified in its charter) Oregon 93-0816972 (State of Incorporation) (I.R.S. Employer Identification No.) One Centerpointe Drive, Suite 200, Lake Oswego, OR 97035 (Address of principal executive offices) (503) 684-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) Common Stock without par value (Name of Each Exchange on Which Registered) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes Yes X No No X Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of \"large accelerated filer\V. CAPITAL STRUCTURE CHOICES What are the different kinds or types of financing that this company has used to raise funds? Where do they fall in the continuum between debt and equity? The company raised the finance through the sale of stock, the sale of company assets like equipment, and funds from investment in joint venture which fall under equity funds. Additionally, the company raised funds from proceeds of issuing notes payable which falls under debt continuum. How large, in qualitative/quantitative terms, are the advantages to this firm from using debt? Utilization of Resources - When the company uses debt to finance its operation, it has got no option than to fully utilize its resources because they will have to pay back the debt and interest to its creditor. Short Term Needs - Debt finance can simply be secured on a short term basis. Tax Advantage - Debt financing also offers tax advantage to the company as interest is deductible for income tax purposes. No Future Lender Claims - Lenders has no direct claim on future earnings Not Dilutive - Debt does not dilute the ownership of the company. Simple Loan Repayment - Lenders are only entitled to loan repayment and interest on loan. How large, in qualitative/quantitative terms, are the disadvantages to this firm from using debt? The main disadvantage of this type of financing is that it requires a company to make regular monthly payments of principal and interest. Most lenders of the funds provide severe penalties for late or missed payments, which may include taking possession of collateral, charging late fees or calling the loan due early. Failure to make payments on a loan, even provisionally, can unfavorably affect a company credit rating and its ability to obtain future financing. Another disadvantage connected with debt financing is that its accessibility is often limited to established companies. Since lenders principally seek protection for their funds, it can be impossible for unproven businesses to obtain loans. The amount of money the company may be able to obtain via debt is likely to be limited, so they may need to use other sources of financing in addition. From the qualitative trade off, does this firm look like it has too much or too little debt? From the debt and equity analysis of the company, it can be affirmed that the company has too little debt as most of the company sources are equity sources. VI. OPTIMAL CAPITAL STRUCTURE Based upon the cost of capital approach, what is the optimal debt ratio for your firm? Habitually the cost of debt is lesser than the cost of equity. This is because debt is a fixed obligation unlike equity. Nevertheless, companies do not operate on debts exclusively because this will consequently increase the risk of bankruptcy (that is the company being not able to meet its fixed obligations). This risk of bankruptcy is also connected with the constancy of sales and earnings (Kim, 2008). A firm with comparatively unstable income will be unenthusiastic to adopt a high degree of leverage since credibly it might be not able to meet its fixed obligations at all. Debt ratio= long-term debt/total assets Debt ratio= 537,153.6/1,790,512= 0.3 or 30% Pursuant to the cost of capital approach, the optimal debt ratio is 30% or 0.3 of the total firm value (GREENBRIER COMPANIES INC, 2015). Bringing in reasonable constraints into the decision process, what would your recommended debt ratio be for this firm? From the company 10k report, it is evident that the company faces a number of risks that affect the company debt level to finance the assets. These risks are constrains to the debt level that can be acquired. The risks include unfavorable movement in exchange rates due to increase in the inflation rate overtime. This makes it expensive for the company to borrow small amount of debt hence calling for a large debt. Additionally, the interest rate is anticipated to increase substantially in future hence need for more debt to finance the company debt. Holding other factors constant, the company debt is anticipated to increase to $716,204.8 which is equivalent to 40% (716,204.8/1790512*100) = 0.4 or 40% Taking into consideration the constrains that affect the decision process, the optimum debt ratio for my firm stands at 40% or 0.4 of the firm value. Does your firm have too much or too little debt o relative to the sector? The company debt is 537,153.6M while the average service sector debt is 420.23M hence the firm has too much debt relative to the sector (Nguyen & Phan, 2015). o relative to the market? The market has debt of 256.78M which makes the firm 537,153.6M to have too much debt relative to the market (Kray, 2006). References GREENBRIER COMPANIES INC - GBX. (2015). Greenbrier Companies Inc Form 10k. Kim, C. (2008). Cost of capital, Q model of investment, and capital accumulation: Tax reform, cost of capital, and capital accumulation. Aldershot, Hants: Ashgate Pub. Kray, R. (2006). The debt. New York: Carroll & Graf. Nguyen, L. T., & Phan, M. H. (2015). Over-Average Debt Ratio and Consequences. Saarbrucken: LAP LAMBERT Academic Publishing. V. CAPITAL STRUCTURE CHOICES What are the different kinds or types of financing that this company has used to raise funds? Where do they fall in the continuum between debt and equity? The company raised the finance through the sale of stock, the sale of company assets like equipment, and funds from investment in joint venture which fall under equity funds. Additionally, the company raised funds from proceeds of issuing notes payable which falls under debt continuum. How large, in qualitative/quantitative terms, are the advantages to this firm from using debt? Utilization of Resources - When the company uses debt to finance its operation, it has got no option than to fully utilize its resources because they will have to pay back the debt and interest to its creditor. Short Term Needs - Debt finance can simply be secured on a short term basis. Tax Advantage - Debt financing also offers tax advantage to the company as interest is deductible for income tax purposes. No Future Lender Claims - Lenders has no direct claim on future earnings Not Dilutive - Debt does not dilute the ownership of the company. Simple Loan Repayment - Lenders are only entitled to loan repayment and interest on loan. How large, in qualitative/quantitative terms, are the disadvantages to this firm from using debt? The main disadvantage of this type of financing is that it requires a company to make regular monthly payments of principal and interest. Most lenders of the funds provide severe penalties for late or missed payments, which may include taking possession of collateral, charging late fees or calling the loan due early. Failure to make payments on a loan, even provisionally, can unfavorably affect a company credit rating and its ability to obtain future financing. Another disadvantage connected with debt financing is that its accessibility is often limited to established companies. Since lenders principally seek protection for their funds, it can be impossible for unproven businesses to obtain loans. The amount of money the company may be able to obtain via debt is likely to be limited, so they may need to use other sources of financing in addition. From the qualitative trade off, does this firm look like it has too much or too little debt? From the debt and equity analysis of the company, it can be affirmed that the company has too little debt as most of the company sources are equity sources. VI. OPTIMAL CAPITAL STRUCTURE Based upon the cost of capital approach, what is the optimal debt ratio for your firm? Habitually the cost of debt is lesser than the cost of equity. This is because debt is a fixed obligation unlike equity. Nevertheless, companies do not operate on debts exclusively because this will consequently increase the risk of bankruptcy (that is the company being not able to meet its fixed obligations). This risk of bankruptcy is also connected with the constancy of sales and earnings (Kim, 2008). A firm with comparatively unstable income will be unenthusiastic to adopt a high degree of leverage since credibly it might be not able to meet its fixed obligations at all. Debt ratio= long-term debt/total assets Debt ratio= 537,153.6/1,790,512= 0.3 or 30% Pursuant to the cost of capital approach, the optimal debt ratio is 30% or 0.3 of the total firm value (GREENBRIER COMPANIES INC, 2015). Bringing in reasonable constraints into the decision process, what would your recommended debt ratio be for this firm? From the company 10k report, it is evident that the company faces a number of risks that affect the company debt level to finance the assets. These risks are constrains to the debt level that can be acquired. The risks include unfavorable movement in exchange rates due to increase in the inflation rate overtime. This makes it expensive for the company to borrow small amount of debt hence calling for a large debt. Additionally, the interest rate is anticipated to increase substantially in future hence need for more debt to finance the company debt. Holding other factors constant, the company debt is anticipated to increase to $716,204.8 which is equivalent to 40% (716,204.8/1790512*100) = 0.4 or 40% Taking into consideration the constrains that affect the decision process, the optimum debt ratio for my firm stands at 40% or 0.4 of the firm value. Does your firm have too much or too little debt o relative to the sector? The company debt is 537,153.6M while the average service sector debt is 420.23M hence the firm has too much debt relative to the sector (Nguyen & Phan, 2015). o relative to the market? The market has debt of 256.78M which makes the firm 537,153.6M to have too much debt relative to the market (Kray, 2006). References GREENBRIER COMPANIES INC - GBX. (2015). Greenbrier Companies Inc Form 10k. Kim, C. (2008). Cost of capital, Q model of investment, and capital accumulation: Tax reform, cost of capital, and capital accumulation. Aldershot, Hants: Ashgate Pub. Kray, R. (2006). The debt. New York: Carroll & Graf. Nguyen, L. T., & Phan, M. H. (2015). Over-Average Debt Ratio and Consequences. Saarbrucken: LAP LAMBERT Academic Publishing