Could you please paraphrase the answer without change the meaning ?

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6. What should Ralph Norwood recommend re garding

the target bond rating

the level of flexibility of reserves

the mix of debt and equity

the maturity structure of debt

and any other issues you believe should be brought to the attention of the CEO and board?

Answer

Ralph Norwood should recommend for Polaroid to stay at BBB as a target bond rating because any bond falls below BBB would be considered high yield or junk debt. The next level lower which is (BB/Ba) would considered as a non investment grade As the calculation shown above, BBB was the right target bond rating. On top of that a penalty will jump up very high if Polaroid were to keep increasing their debt because their rating will fall below BBB.

The flexibility of reserves which he should have reccomended to be around $ 690 million as the total debt before the rating start to change. Norwood believed that their forecast was underestimating their cash flow which therefore would increase some more flexibility with the EBIT around $150 million.

Norwood recommended the company to minimize their cost of capital. As can see on the table above. AAA has the lowest cost of debt and lowest cost of equity. Base on the market value above weight of debt should be 19.6% and the weight of equity should be around 80%.

The structured maturity structure of debt was around 5 to 6 years time period. I think the big issue with polaroid was product development. They should not just focus on the financial issue but instead, they should deal with one of the reason why sales went down or why their products were not selling. All of their competitors were gaining more market share by developing new technologies and cameras that attracts all of polaroid's customers. So I suggest Polaroid should do the same.