Exhibit 7 Financial Statistics for Select Industries, December 31, 1998 1998 Debt to Times Projected Total Capital Interest Return on Growth (book value) Earned Assets in Sales Retail (General Merchandise) 60% 5.0X 7.96% 6.5% Retail (Food Chains) 59 4.0 6.08 7.5 Telephone (Local Service) 59 4.5 8.09 4.5 Tobacco 8.5 9.88 9.0 Electric Utilities a 2.6 2.86 4.5 Natural Gas Utilities a 2.9 3.65 9.4 Lodgings-Hotels 9.9 9.75 9.0 Airlines 5.9 7.09 7.2 Water Utilities a 3.1 3.04 5.8 Hardware & Tools -1.4 -11.96 NA Aerospace/Defense 6.1 3.66 2.4 Railroads 2.9 2.56 5.6 Household Products 6. 11.26 8.7 Restaurants 4.4 8.03 11.7 Publishing (Newspapers) B.1 9.09 7.9 Iron & Steel 14.8 6.92 10.9 Personal Care 11.5 9.43 9.4 Chemicals (Specialty) 16.8 7.93 5.2 Telecommunications (Long Distance) 3.6 3.60 8.0 Textiles (Apparel) 5.8 9.01 7.4 Health Care (Drugs) 25 25.1 15.16 10.3 Leisure Products 25 5.0 6.60 10.0 Telecommunications (Cellular) 24 4.0 2,17 14.5 Retail (Specialty) 23 8.7 6.20 10.7 Textiles (Home Furnishing) 19 2.5 2.60 8.6 Electronics (Semiconductors) 15 33.0 15.03 10.1 Electronics (Components Distribution) 11 27.6 11.34 12.0 Biotechnology 30.6 23.51 18.0 Computer (Software/Services) 16.3 18.25 23.5 Computers (Networking) 112.3 b 13.58 44.5 Mean 36 14.1 7.75 10.4 Median 38 6.0 7.95 9.0 Source: S&P Analysts' Handbook, Standard & Poor's Corp., New York, 1999, and Value Linecompensation from Iridium. 19. According to the financing plan, Iridium would raise $1.6 billion of equity followed by $1.8 billion of debt giving it a debt-to-total capital ratio of approximately 50%. By August 1993, Iridium had obtained commitments for $800 million from its strategic partners, including a total of $270 million from Motorola. It hoped to raise another $800 million from the strategic partners in 1995, at which time, Motorola's ownership share would decline from 34% to 19% 13Exhibit 5 Iridium Financial Projections and Capitalization, 1999-2007 ($ millions) 1998 Act. 1999 2000 2001 2002 2003 2004 2005 2006 2007 Income Statement (millions) # Voice Subscribers 800 1,475 2,525 3,675 4.550 5.275 5.900 6.525 7,150 # Paging Subscribers 50 125 225 325 425 525 600 650 690 Revenues $0.2 $403 $2,183 $3.748 $4.994 $5.821 $6.249 $6.435 $6,495 $6,481 EBITDA 436 351 1,339 2,809 3,859 4,611 4,973 5,100 5,084 5,001 Doprociation/Amort. 552 811 966 1,213 1,333 1,084 1,109 1,020 822 605 EBIT 988 -1,162 373 1,596 2.520 3,527 3,864 4.080 4,262 4,396 Interest Expense, not 265 387 454 424 278 59 39 92 Profil Before Tax -1,253 -1,549 1.172 2.240 3.400 3,804 4,080 4,223 4,304 Taxes @ 15% 176 337 520 580 612 633 646 Net Income -1,253 -1,549 81 996 1,911 2,948 3,284 3.468 3.590 3,658 Cash Flow Data Depr./Amortization 552 811 966 1,213 1.333 1.084 1,109 1,020 822 605 Capital Expenditures 716 027 1,340 1.246 1.268 1,274 385 301 413 844 Iner. (Decr.) in NWC a (398) 290 63 (102) (81) (54) (28) (12) (4) (1) Balance Sheet Data Cash 25 10 10 10 10 20 30 SO 50 50 Prop., Plant & Equip. 3,584 3.215 3,597 3,630 3.555 3,745 3,020 2,390 1,981 2,103 Total Assols 3,739 3.319 3.833 3,979 3.990 4.270 3,582 2.988 2.583 2,704 Total Debt 2.854 3,930 4.437 3.352 1.266 450 1155 Iridium, LLC, Capitalization as of 12/31/98 Capital Market Data as of 12/31/98 ($millions) Dobt Iridium Information Secured Bank Debt, @ Prime + 2.75% $500 Stock Price (IRIDO) $39.56 Guaranteed Bank Debt, @ Prime 625 Equity Bota (wookly data) 1.58 Sr. Sub. Notes @ 14.5%, duo 2006 323 Asset Beta (1998 average) 1.25 Senior Notes A @ 13.0%, due 2005 278 Class 1 Interests (shares) 141 million Sonior Notos B @ 14.0%, duo 2005 480 Class 1 Interests (fully diluted) b 185 million Ronior Notes C @ 11.25%, due 2005 300 Procoeds from Class 1 warrants b $220 million Senior Notes D @ 10.88%, due 2005 348 Total Debt 2.854 Yields on US Treasury Bills, Notes and Bonds Deferred payments due to Motorola $218 3-month 4.48% Equity 1-year 4.53% Preferred Partnerships (Equity-Class 2) $46 10-year 4.65% Total Class 1 Equily Raised 2,114 30-year 5.09% Accumulated Losses 1,683 Net Class 1 Equity (book value) $431 Prime Rate 7.75% Debt/Total Capital (book value) 86% Yields on Corporate Bonds Debt/Total Capital (market value) 34% Ana Rato 6.23% Debt/Total Capital (capital raised) 57% Ban Rated 7.23% Source: Salomon Smith Barney, Equity Research Report, 2/1/99; case writer estimates.Question 3 [25 marks] Please, refer to paragraph 19, and exhibits 5 and 7. 1. Calculate the cost of equity using CAPM method. Use the 10-year risk free rate from exhibit 5, and assume that the excess market return is 5.00%. (5 marks) 2. Calculate the weighted average cost of debt using all debt instruments given in exhibit 5. Assume that all debt instruments are already marked to market values, except the secured and guaranteed bank debt instruments. (10 marks) 3. Using the cost of equity and weighted average cost of debt, calculate the weighted average cost of capital (WACC). Assume the tax rate is 15.00%. (5 marks) 4. Recalculate the WACC using the median debt-to-total capital ratio in exhibit 7. How different would the company value be if you value the equity using the new WACC? (5 marks) Hint: Please, use 4 decimal points while rounding up the percentages