Mamie Sheene found herself in a challenging position as the CFO of Winfield Refuse Management. She was tasked with leading the discussion on how to finance a major acquisition, which was no easy feat. The company had traditionally avoided long-term debt, but Sheene believed that the stability of the combined Winfield-MPIS business would support such a decision. She knew that the board had previously gotten into a contentious debate about the financing, and with the next board meeting just two days away, she was determined to ensure that the board could reach a resolution this time around.

After careful consideration, Sheene proposed that the company sell $125 million in bonds to a Massachusetts insurance company, with an annual interest rate of 6.5%. She calculated that the 6.5% rate would be the equivalent of 4.225% on an after-tax basis due to the tax shield allowed on interest payments. Sheene believed that issuing debt was the most economically attractive option.

However, Sheene faced opposition from some board members. Andrea Winfield immediately challenged Sheene’s numbers, pointing out that annual principal repayments had been excluded and that Winfield already had long-term liabilities. Joseph Winfield argued that issuing new shares at $17.75 would be a disservice to shareholders. Ted Kale took the opposite position and became rather agitated about what he believed were Winfield’s grossly undervalued shares. Joseph Tendi and Naomi Ghonche concurred with Kale about not issuing new common stock, but argued that this needed to be measured in terms of earnings per share.