In recent years, many firms have experienced significant difficulties in running their operations. This has primarily been down to the stagnant global economic environment, but is also a result of exceptionally high volatility in the financial markets. Undertake your own research and identify a firm that has undergone a significant restructuring of its business.
1. Use NPV and other capital budgeting theories to explain the reasoning behind their restructuring.
2. Is it possible for the value of distressed firms’ shares to go up even though their sales revenues are extremely likely to fall as a result of their decisions? Explain your answer.
3. What do you think would be the effect of your firm’s business decisions on its risk? How would this factor into the value of your company’s operations?
4. Can you think of any other business decisions your company could have made to protect itself against future economic conditions? Give some reasons why you think it did not choose these.
5. Look up the share price of your firm and search the Internet (FT.com, Yahoo! Finance, Reuters, Google News are examples) for information on your company over the last 3 years. What was the main reason for the financial distress your company is currently in?
Do you think its restructuring strategy will be successful? Explain.