You are the manager of a company that produces automobiles. A union contract will come up for renegotiation in two months and you wish to increase your firm’s bargaining power prior to hearing the union’s initial demands. The union is likely to ask for a 25 percent increase from existing wage levels of $20 per hour for the 1,000 workers at your company. Workers typically work 2000 hours per year. The firm has $100 million of debt outstanding at an interest rate of 10 percent annually, and an equity market value of $200 million. Income before interest is $20 million per year. Assume no taxes.
What specific financing strategies would you implement and why?