Cost of Financing (NPV)1

1. Winfield Refuse Management Inc.
Raising Debt vs. Equity
Iris Chen
Alex Ho
Brian Huang
Pramod Jindal
Michael Trecroce

2. Executive Summary
Objective
Alternatives
Recommendation
Criteria
What is the best financing option for the $125M acquisition of Mott-Pliese
Integrated Solutions (MPIS)?
1. Debt with Fixed Principal Repayments
2. Debt
3. Equity
4. Debt & Equity
Winfield should finance the $125M through issue of bonds with no
principal repayments
Impact on Firm:
• Total Cost of Financing (NPV)
Impact on Shareholders:
• EPS & ROE
Risk Tolerance:
• Interest coverage, Debt coverage, Dividend coverage
Winfield Refuse Management 2

3. Introduction
Winfield MPIS
Winfield
+ MPIS
$27M $15M $42M
Midwest Mid-Atlantic &
Midwest
Midwest & Mid-
Atlantic
+ =
Net Income Net Income Net Income
Region Region Region
Winfield Refuse Management 3

4. Winfield’s Current Financial Position
50%
50%
Industry: Debt-to-Equity
Equity Debt
79%
21%
Winfield: 100% Equity Ownership
Winfield Family OTC
$0.00
$0.50
$1.00
$1.50
$2.00
2006 2007 2008 2009 2010 2011 2012E
$/Share
EPS and Dividends
DPS
Winfield Refuse Management 4
$0
$10
$20
$30
$40
$50
$0
$100
$200
$300
$400
$500
2006 2007 2008 2009 2010 2011 2012E
NetIncome($M)
Revenue($M)
Winfield’s Revenue and Net Income
Revenue Net Income

5. Financing Alternatives
1. Debt with Fixed Principal
Repayments
 15 years
 6.5% interest rate
 $6.25M annual principal payment
Capital Needs: $125M
2. Debt
 15 years
 6.5% interest rate
 Full principal paid at Year 15
8.13
2.44
6.25
6.25
37.50
0
5
10
15
20
25
30
35
40
45
CashOutflows($M)
Year
Debt with Fixed Principal Repayment Schedule
Interest Principal
8.13
125.00
0
20
40
60
80
100
120
140
CashOutflows($M)
Year
Debt Schedule
Interest Principal
Winfield Refuse Management 5

6. Financing Alternatives Continued:
7.50
0
20
40
60
80
100
120
140
160
180
CashOutflows($M)
Year
Dividend Payout Schedule
Dividend Dividend Terminal Value
Interest: 6.09
Principal:
93.75
Dividend:
1.87
0
20
40
60
80
100
120
140
160
CashOutflows($M)
Year
Debt (75%) and Equity (25%) Schedule
Interest Principal Dividend Dividend Terminal Value
Winfield Refuse Management 6
3. Equity
 7.5M new shares @ $17.75
 Perpetual Dividend Payments
 Dividend Policy is $1.00/Share
Capital Needs: $125M
4. Debt & Equity
 25% equity, 75% debt
 1.87M new shares @ $17.75
 Perpetual Dividend Payments
 Dividend Policy is $1.00/Share

7. Decision Criteria
Impact on Firm:
• Total Cost of Financing (NPV)
Impact on Shareholders:
• Earnings Per Share
• Return on Equity
Risk Tolerance:
• Interest coverage
• Debt coverage
• Dividend coverage
Winfield Refuse Management 7

8. Cost of Financing (NPV)1
Among all the financing options considered, Debt (with no principal repayments)
has the lowest NPV cost whereas Equity has the highest NPV cost.
1NPV mentioned here represents the cost of financing cost and the lower NPV implies cheaper financing
2Cost of Equity was calculated using CAPM formula
3Cost of Debt of 3.5% (Prime in 2012) was used rather than Initial Cost of Debt (i.e., 6.5% in 2012)
Winfield Refuse Management 8
$113
$107
$145
$117
$0
$20
$40
$60
$80
$100
$120
$140
$160
Debt with
Fixed Principal
Repayments
Debt Equity 75% Debt +
25% Equity
NPVofFnancingCosts($M)
NPV of Financing Alternatives
Assumptions
Marginal Tax Rate 35%
Beta 0.36
Market Risk Premium 6%
Risk-free Rate (Rf) 3%
Cost of Equity2 (Ke) 5%
Cost of Debt3 (Kd) 3.5%
Time horizon (Years) 15
Dividend per share $1

9. Debt Equity
Pros No impact on shares No impact on earnings
Cons Reduced earnings by interest Increased number of shares
Expected EPS $ 2.51 $1.91
Winfield Refuse Management 9
Earnings Per Share
Pre-acquisition EPS: $1.83
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$46 $51 $56 $61 $66 $71 $76
EarningsPerShare
EBIT ($M)
Post-acquisition Earnings Per Share
EPS (Debt)
EPS(Equity)
EPS (Debt+Equity)
Expected
EBIT of
66M
Debt financing options provide the highest expected EPS under likely EBIT
scenarios.

10. • Adjusted EPS = (NI-principal repayment)/ number of shares
• Higher earnings per share with the bond option, even treating
principal repayments as “expenses”
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Adjusted Earnings Per Share
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
AdjustedEarningsPerShare
EBIT ($M)
Adjusted Post-acquisition EPS
EPS( Debt, including principal
repayment)
EPS(Equity)
Expected
EBIT of
66M
Even with Principal Repayments included on an Adjusted EPS basis, EPS with
Debt Financing would be greater than EPS with Equity Financing

11. Winfield Refuse Management 11
Return of Equity
Debt Equity
Pros No impact on shares No impact on earnings
Cons Reduced earnings by interest Increased BV of equity
Expected
ROE
5.80% 5.25%
Pre-acquisition ROE: 4.01%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
$46 $51 $56 $61 $66 $71 $76
ReturnonEquity(%)
EBIT ($M)
Post-acquisition ROE
ROE (Debt+Equity)
ROE(Equity)
ROE (Debt)Expected
EBIT of
66M
Debt financing options provide the highest expect ROE under likely EBIT
scenarios.

12. From Monte-Carlo Simulation (See Appendix):
• EBIT for any given year can range from $46M to $78M
• Retained earnings by FY2026 can range from $693M to $1,073M
1Debt service includes interest and principal repayment except for the bullet year
2Debt retirement refers to ability to pay back the principal by end of the term
Debt Service and Retirement Coverage
Winfield Refuse Management 12
1x
6x
11x
16x
21x
$46 $48 $50 $52 $54 $56 $58 $60
Combined Estimated EBIT (in $M)
Debt Service Coverage
Debt with Fixed Principal Repayment
Debt
75% Debt and 25% Equity
2x
7x
12x
17x
22x
27x
$693 $726 $759 $792 $825 $858
Estimated Retained Earnings by 2026 (in $M)
Debt Retirement Coverage
Debt with Fixed Principal Repayment Debt
Winfield can safely meet debt obligations under all financing alternatives.

13. Dividend Payout Coverage
Assuming Winfield continues to pay $1 dividend per share to all of its
shareholders in each financing option:
1Dividend to 15M existing shareholders plus additional shareholders needed for the respective
option.
Winfield Refuse Management 13
1x
2x
3x
46 48 50 52 54 56 58 60
Combined EBIT for any given year
Dividend Payout Coverage Ratio1
Debt with Fixed Principal Repayment Equity Debt 75% Debt and 25% Equity
Winfield can safely pay dividends to shareholders under all financing alternatives

14. • Other considerations
 By issuing debt, Winfield would avoid control dilution
 Flexibilities – sufficient cash flow to meet
commitments under all options
Winfield Refuse Management 14
Decision Criteria Debt
Debt with
Principal
Repayment
Equity
Debt (75%)
+ Equity
(25%)
Cost of Financing
(NPV)
Expected EPS
Expected ROE
Risk Tolerance
(Coverage)represents the better alternative represents the lesser alternative
Winfield should finance the $125M through issue of bonds with no principal
repayments
Evaluation of Options & Summary

15. Question & Answers
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16. Concerns from Last Board Discussion
Concern Our View
Andrea Winfield Stock issue is lower cost and
additional debt would increase
risk leading to swings in stock
price
Stock issue is most expensive
option. Winfield can meet debt
obligations under varying EBIT
scenarios. In fact, debt will
increase EPS and ROE,
increasing stock price.
Joseph Winfield By issuing 7.5M shares, Winfield
will only have to pay $7.5M in
dividends
Debt cash outflows with debt is
for a finite period while stock
dividend outflows are perpetual
Ted Kale Market price is too low (based on
Price-to-book comparable).
Issuing shares at low price and
loss of management control is a
disservice to current
stockholders.
This is not the only criteria for
financing. Price may be low due
to a liquidity discount to trade
OTC. P/B is not comparable
when capital structure varies.
Joseph Tendi Principal repayment obligation is
irrelevant to the financing
decision
Principal repayment is relevant
because it is a real cash outflow
James Gitanga Other major companies have
long-term debt in capital structure
Analysis shows Winfield has the
capacity to take-on more debt in
Winfield Refuse Management 16

17. Appendix
Winfield Refuse Management Inc.

18. Summary of Financing Schedules
Winfield Refuse Management 18

19. Monte-Carlo Simulation: Estimated
Combined EBIT
Note: Standard Deviation was calculated from last 5 year performance.
Winfield Refuse Management 19
Std Dev Average
MIPS Before Tax 2,377 24,000
Winfield Before Tax 3,639 36,745

20. Monte-Carlo Simulation: Estimated
Retained Earnings in FY 2026
Winfield Refuse Management 20
Note: Ending Retained Earnings= Beginning Retained Earnings + Net Income – Divid
Net Income Standard Deviation=3.6

21. Cash outflows for debt options
Winfield Refuse Management 21
Debt with fixed principal repayments: Financing Cash Flow ($M)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Debt 125.0 118.8 112.5 106.3 100.0 93.8 87.5 81.3 75.0 68.8 62.5 56.3 50.0 43.8 37.5
Principal Repayments 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 37.50
Interest 4.38 4.16 3.94 3.72 3.50 3.28 3.06 2.84 2.63 2.41 2.19 1.97 1.75 1.53 1.31
Debt Outstanding 118.75 112.50 106.25 100.00 93.75 87.50 81.25 75.00 68.75 62.50 56.25 50.00 43.75 37.50 -
Tax shield 1.53 1.45 1.38 1.30 1.23 1.15 1.07 1.00 0.92 0.84 0.77 0.69 0.61 0.54 0.46
Interest Payment after tax 2.84 2.70 2.56 2.42 2.28 2.13 1.99 1.85 1.71 1.56 1.42 1.28 1.14 1.00 0.85
Principal Repayments 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 6.25 37.50
Net Cash Outflow 9.09 8.95 8.81 8.67 8.53 8.38 8.24 8.10 7.96 7.81 7.67 7.53 7.39 7.25 38.35
NPV 113
Debt: Financing Cash Flow ($M)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Debt 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0
Principal Repayments - - - - - - - - - - - - - - 125.0
Interest 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.4
Debt Outstanding 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 125.0 -
Tax shield 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5
Interest Payment after tax 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8
Principal Repayments - - - - - - - - - - - - - - 125
Net Cash Outflow 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 2.8 127.8
NPV 107

22. Cash outflows for Equity options
Winfield Refuse Management 22
Equity: Financing Cash Flow ($M)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Dividend Payout 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5
TV 145
Div+TV 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 153
NPV 145
Equity and Debt: Financing Cash Flow ($M)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Debt 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8
Principal Repayments - - - - - - - - - - - - - - 94
Interest 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3
Debt Outstanding 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 93.8 -
Tax shield 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Interest Payment after tax 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Principal Repayments - - - - - - - - - - - - - - 94
Net Cash Outflow 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 95.9
NPV of Debt 81

23. Cost of Financing (3.5% vs. 6.5%)
Winfield Refuse Management 23
$106
$98
$145
$110
$0
$20
$40
$60
$80
$100
$120
$140
$160
Debt with
fixed
principal
repayment
Debt Equity 75% Debt +
25% Equity
NPVofFnancingCosts($M)
NPV of Financing Alternatives
$113
$107
$145
$117
$0
$20
$40
$60
$80
$100
$120
$140
$160
Debt with
Fixed
Principal
Repayments
Debt Equity 75% Debt +
25% Equity
NPVofFnancingCosts($M)
NPV of Financing Alternatives
NPV @ 3.5% NPV @ 6.5%
Change in Interest from 3.5% to 6.5% yields the same financing decision.

24. EPS (with interest = 6.5%)
Winfield Refuse Management 24
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
$46.00
$47.00
$48.00
$49.00
$50.00
$51.00
$52.00
$53.00
$54.00
$55.00
$56.00
$57.00
$58.00
$59.00
$60.00
$61.00
$62.00
$63.00
$64.00
$65.00
$66.00
$67.00
$68.00
$69.00
$70.00
$71.00
Post-acquisition EPS
EPS (Debt)
EPS(Equity)
EPS (Debt+Equity)
Expected
EBIT of 66M
EBIT ($M)

25. Adjusted EPS (with interest = 6.5%)
Winfield Refuse Management 25
-
0.50
1.00
1.50
2.00
2.50
3.00
Adjusted Post-acquisition EPS
EPS( Debt, including
principal repayment)
EPS(Equity)
Expected
EBIT of
66M

26. ROE (with interest = 6.5%)
Winfield Refuse Management 26
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
$46.00
$47.00
$48.00
$49.00
$50.00
$51.00
$52.00
$53.00
$54.00
$55.00
$56.00
$57.00
$58.00
$59.00
$60.00
$61.00
$62.00
$63.00
$64.00
$65.00
$66.00
$67.00
$68.00
$69.00
$70.00
$71.00
Post-acquisition ROE
ROE
(Debt+Equity)
ROE(Equity)
ROE (Debt)
Expected
EBIT of
66M