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 …show more content…

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