Question
Hi, there is a case study that provides the background information . Its the Harvard Business Review Debt Policy at UST Inc. case. Assume a
Hi, there is a case study that provides the background information . Its the Harvard Business Review Debt Policy at UST Inc. case.
Assume a 38% tax rate and a 10% discount rate when discounting future dividends. Assume that the new debt is constant and perpetual and that the buyback operation is unexpected by stock market participants.
1) What are the primary business risks of UST? Evaluate them from the point of view of a bondholder.
2) Why is UST considering a leveraged recapitalization after such a long history of conservative debt policy?
3) Should UST undertake the $1bn recapitalization? Prepare a proforma income statement for 1999 to analyze whether UST will be able to make interest rate payments. How sensitive is your conclusion to the rating UST bonds receive?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started