$1.$ How has MCI financed its needs in the past? Why did MCI make the financ$$ing choi$$ces it did?

$2.$ How much external capital is MCI likely to need over the next several years $($FY$84-$ FY$88)?$ By how much could they reasonably be expected to vary?

$3.$ What capital structure policies should MCI adopt?

$4.$ Assume that Mr$.$ English, the MCI CFO, has the following financing alter$$na$$tives avail$$able to him as of April, $1983$:

a$.$ $$500$ million of $12\mathrm{.}5\%,20$ year subordinated debentures.

b$.$ $$400$ million of common stock.

c$1.$ $$600$ million of $7\mathrm{.}625\%,20$ year convertible debentures with conversion price of $$54/$ share $($i$.$e$.$ each $$1000$ bond would be converted into $18\mathrm{.}52$ common shares$).$ The de$$benture would be callable after $5$ years.

c$2.$ $$600$ million of a unit package consisting of $7\mathrm{.}50\%,10$ year subordinat$$ed de$$bentures and $18\mathrm{.}18$ warrants $($i$.$e$.$ for $$1000$ you get a bond with a $$1000$ prin$$cipal amount yielding $7\mathrm{.}50\%$ and $18\mathrm{.}18$ warrants$).$ Each war$$rant enti$$tles the hold$$er to purchase one share of MCI common for $$55.$ The war$$rants would be callable after three years and exercisable until $1988.$ The exer$$cise price of the war$$rants would be payable either in cash or by surren$$der of the debentures valued at their principal amount.

d$.$ Wait and do nothing.

Which of these alternatives would you recommend that he take? Why? In broad out$$line$,$ what financing steps would you recom$$mend that he take over the next sev$-$eral years?

Do not try to value the warrant using Black$-$Scholes or some simi$$lar method.

Think qualitatively.