MIMIC will now have equal quality access to the network, they will have to increase capital expenditures in the long-term to be able to compete with AT&T. By picking debt with a longer maturity, the duration of the debt will more closely match the duration of the capital expenditure project that will surely follow. ) I would recommend taking option (co). Firstly, as we had mentioned, it is best that we take long-term debt as MIMIC can take advantage of lower interest rates for such debt, as well as have this debt match the duration of their capital expenditures for the future. Secondly, the convertible warrants allow for a lower interest rate as investors are willing to make a tradeoff on higher rates for an opportunity to take part in any equity gain if Mi’s stock sees a significant gain.
Additionally, if these conversions do happen, it would be a clear signal to the market that MIMIC is competing effectively against AT, and may be able to allow them to attract more capital with relative ease. Finally, it is prudent that MIMIC find as much financing as possible (hence picking the option yielding the largest amount of cash) as we have established that the market hat MIMIC is competing in will become highly unpredictable in the next few years.
We disregard the other options for the following reasons: (a) Does not raise the most capital and has a higher interest rate. (b)Does not raise enough capital, and a common stock issuance would send the wrong signals, lowering share price and making it more difficult to raise capital in the future. (CLC) Slightly higher interest rate than (co), and the convertibility is less favorable for MIMIC than in (co). (d) MIMIC would be unable to fund its operations if they do nothing.