Assume that (perpetual) debt is issued (and shares are repurchased with the proceeds) at the end of 1993 in the value of either 10%, 20% or 30% of the pre-repurchase market value of UST (i.e., of the market value based on the table ). Assume further that, for 1994, EBIT remains $576 million.

Compute the  table for UST for 1994 under the three different repurchase scenarios. En route, you may need to answer the following question: 

What do you expect UST's bond rating and interest rate to be at each of the debt levels? Be as precise as possible, but conservative in your estimation and explain briefly how you came up with these (rough) estimates.  

Bond rating Interest coverage (average 1990-92) Interest rate (December 1993) * AAA 16.7 6.7% AA 9.3 7.3% A 4.4 7.8% BBB 2.3 8.5% BB 1.3 9.1% B 0.8 10.6%