Central Express CorporationCentral Express Corporation has recently experienced high levels of growth as a result of aggressive management using proceeds from the initial public offering of its stock. To continue revenue expansion, CEC has adopted a policy of selective acquisitions. The board selected Midland Freight, Inc. for the acquisition. CEC is now evaluating whether to use long-term bonds, common stock or preferred stock as a financing method for the $10 million acquisition project. The cost of capital calculation shows that long-term bonds have the lowest cost of 5.39%; furthermore, this also results in relatively higher earnings per share which most likely translates into a higher market price per share, as supported by statistical analysis. Leverage is also favorable from an EBIT of $2.6 million – below the expected earnings recession level – and above. The additional risk and liquidity demand of the bonds are addressed through additional profits from the acquisition, expected stability of future earnings, factoring of high levels of receivables and rising prices. Dilution of earnings per share is also avoided through the use of debt versus equity; therefore, the reduction of the market price per share is also avoided. Therefore, the group recommends the use of long-term debt as a means to finance the acquisition. Central Express Corporation (CEC) is a commodity carrier serving areas throughout the United States. It has been in the industry for more than 40 years, but has seen notable growth only in the last decade, when efforts have been made on intensive marketing and service improvement. The initial public offering of CEC common stock in 1967 raised funds used in computerization operations...... middle of paper......000 7 -800,000 -800,0008 -800,000 -500,000 -1,300,000 8 -800,000 -800 ,0009 -800,000 -500,000 -1,300,000 9 -800,000 -800,00010 -800,000 -500,000 -1,300,000 10 -800,000 -800,00011 -800,000 -500 .000 -1.300,0 00 11 -800.000 -800.00012 -800.000 -500.000 -1,300,000 12 -800,000 -800,00013 -800,000 -500,000 -1,300,000 13 -800,000 -800,00014 -800,000 -500,000 Payment of principal -1,300,000 14 -800,000 Payment of capital -800,000 End 15 (Settlement of the bond) - 800,000 -500,000 -2,500,000 -3,800,000 End 15 (Settlement of the bond) -800,000 -10,000,000 -10,800,000 IRR 10.78% IRR 8.00% Cost after taxes 5.39% Cost after tax 4.00% Exhibit 5 Cost of equity Capital Cost of P/SDividend per share 8.25 Cash proceeds 98.50 Cost 8.38 %Cost of C/S Dividend per share 2.00 Cash proceeds 25.00 Average growth 14.44% Cost 22.44%