Bank, landlord or outside investor: three ways to fund a precast plant, priced in a GM506 Unit 7 memo that asks which new party the family owners can live with. Searches like "gm 506 unit 7 assignment example", "gm506 unit 7 sample" and "gm506 unit 7 example" land here.
What a finished GM506 Unit 7 capital structure memo looks like
Three pages in memo form, addressed to the family board, with the recommendation in the opening paragraph. A funding table follows: each route in a column, with rows for new debt, annual rent, net debt to EBITDA in the build year, interest coverage, leverage three years later, and what each outside party can require. All bank debt pushes leverage to 4.24 times against a 3.50 covenant ceiling; the leaseback route shows 3.46 times, or 3.26 with a two-year dividend pause; the equity route shows 2.98. A second paragraph prices the equity: 8.0 million for 30 percent implies a pre-money value near 18.7 million, below the 25.4 million of book equity. Governance consequences close the memo, one paragraph per route.
How a GM506 Unit 7 example is structured
The memo argues that the three routes differ more in control than in cost, and it earns that claim by computing the cost first. With leverage and coverage on the table, it turns to what each route hands someone outside the family. Debt beyond the covenant hands the bank a waiver negotiation in the first year. The leaseback hands a landlord a twenty-year fixed charge, and the memo shows that on a lease-adjusted basis leverage matches the all-debt route at 4.24 times, so part of the saving is definitional. The minority stake hands an investor a board seat, consent rights and an exit clock, at a price below book. The recommendation, the leaseback with a dividend pause, is presented with the lease-adjusted figure beside it, so the board decides knowing what the covenant arithmetic conceals.
Recommendation and its price
Leaseback plus a 10.0 million term loan, dividends paused for two years, leverage held near 3.3 times. The paragraph states what the owners give up to get there.
Three routes in one table
Debt, rent, leverage and coverage computed on 2025 figures, so that each column answers the same question at the same moment for the same business.
Covenant arithmetic and its limits
Many bank definitions leave the lease obligation out of funded debt. Capitalized, the leaseback reaches 4.24 times, identical to borrowing everything, and the memo quotes the definition it relies on.
Equity priced below book
Selling 30 percent for 8.0 million values the business before the plant at about 18.7 million. The memo sets that beside book equity and beside the plant's appraised value.
Who sits at the table
Bank covenants, a landlord's lease terms, an investor's board seat: each is described as a governance change the family board would be voting on, whatever the rate.
Where marks go in GM506 Unit 7
Comparing interest rates and stopping there is the usual shortfall in this unit. Higher marks generally go to a memo that computes leverage and coverage under each option, checks them against the lender's actual covenant, and then addresses consequences a rate comparison cannot show. Accuracy on leases matters; treating a sale-leaseback as free money, or ignoring that rent is a fixed obligation, draws comments. The equity option needs a price, and a memo that recommends against outside equity without computing what it would cost argues from preference. Memo form is typically assessed as well: recommendation first, one table, no calculation walk-through in the body. A closing statement of what would change the recommendation is often expected by instructors.
Get a GM506 Unit 7 example written to your instructions
Include your case figures, the lender terms if the case provides them, and the Unit 7 memo prompt and rubric. The first funding memo arrives without charge in 24-48h, recommendation on top, each route costed in one table, and the control each funder gains stated alongside the numbers so control and cost are weighed together.
GM506 Unit 7 questions, answered
Does a capital structure memo need theory?
A little, used precisely. The trade-off between tax benefits and distress costs, or the pecking order of internal funds, then debt, then equity, can explain why an option is attractive. The memo's reader is a board, though, so theory belongs in one or two sentences tied to a figure, never in a separate literature section.
What counts as debt in the leverage figures?
Whatever the lender's covenant says counts, and the memo should quote it. Many credit agreements exclude operating lease obligations from funded debt, while rating agencies and careful analysts add them back. Showing both versions, covenant leverage and lease-adjusted leverage, keeps the board from mistaking a definitional gain for a real one.
Should the memo consider family equity?
Yes, if the case gives any sign the owners have funds outside the business. Owner equity avoids new outside parties but concentrates the family's own risk in one market. A single paragraph weighing that concentration, with any figure the case supplies, usually satisfies prompts that ask for a full range of options.