newgrade case study

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NewGrade Energy Case Study

Summary of the company:

The case study of NewGrade Energy is based on data analysis from 2009. A privately owned company located in Regina, Saskatchewan that operates heavy oil upgrader, The Company’s ownership structure consists of the Government of Saskatchewan and Federated Co-Operatives Limited each owning 100% of the company and Crown Investment Corporation (CIC) and Consumer’s Co-Operative Refineries Limited (CCRL) both owning 50% (Ivey, 2009). At the time of its $ 770 million dollar, inception in 1988 CIC and its third-party lenders financed $150 million to the project and the government of Saskatchewan and Canada guaranteed the capital venture (Ivey, 2009). The
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The advisor was provided with the cash flow forecast for the 2008 through 2025 period; this is also available in Exhibit 5. New Grade is projected to have fluctuating cash flows for this period with $114.4 million in 2008; $153.2 million in 2009; $101 million in 2010; and cash flows of less than $100 million between 2011 through 2021 with the highest cash flows in 2021 with $97.5 million and the lowest in 2015 with $74.1 million (Hatch & Khan, 2011). The firm’s cash flows are projected to reach $100 million levels again between 2022 and 2025 with $100.8 million in 2022; $104 million in 2023; $107.3 million in 2024, and $110.6 million in 2025 (Hatch & Khan, 2011).
A firm’s capital structure refers to its “mixture of a variety of long term sources of funds and equity shares including reserves and surpluses of an enterprise” (Pratheepkanth, 2011, p. 172). Most companies in the industry have a capital structure that consists of low levels of debt, which is evident from the various debt-to-equity ratios of competing firms. Only one firm, Frontier, has a high debt-to-equity ratio of 21 percent while the others range from 0 percent to 3 percent (Hatch & Khan, 2011). According to the case study, NewGrade’s capital structure does not include debt because a portion of the company’s 1988 construction was financed by $154