Debt Policy Ust Inc Pdf

26.01.2020
78 Comments
Policy

By: Yan • Research Paper • 629 Words • March 27, 2010 • 3,357 Views

Debt Policy at Ust

Question 3) Should UST inc. Undertake the $1 billion recapitalization? Calculate the marginal (or incremental) effect on UST's value, assuming that the entire recapitalisation is implemented immediately (January 1, 1999) VL = VU + PV (interest tax shield) – PV (Financial distress. Debt Policy at Ust Inc. Debt policy at UST inc. Case To: UST Board of Directors From: UST Financial analysis team Date: 18 January 2011 Subject: Future debt policy at UST and recapitalization option 1. Assignment Help >> Case Study. This case is based on the HBS Debt Policy at UST Inc. Instructions: The case should be done in your assigned groups. Hand in printouts of thespreadsheets and a brief write-up not exceeding two pages explaining what was done. Question 3) Should UST inc. Undertake the $1 billion recapitalization? Calculate the marginal (or incremental) effect on UST's value, assuming that the entire recapitalisation is implemented immediately (January 1, 1999) VL = VU + PV (interest tax shield) – PV (Financial distress.

Open Document. Below is an essay on 'Debt Policy at Ust, Inc.' From Anti Essays, your source for research papers, essays, and term paper examples. Case Study Debt Policy Ust Inc. Author: Will Tan. Recommend Documents. Case Study 41 - Mogen Inc. Case Studies in Finance 7th edition Case Paper.

Debt Policy at UST Inc.

Debt Policy Ust Inc Pdf Login

1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.?

Debt Policy Ust Inc Pdf Online

Evaluate from the viewpoint of a bondholder. (Your answer should be more qualitative than

quantitative!)

The following factors weave into the risks and attributes of the company from the creditors’

point of view:

A. UST had seven pending health related lawsuits at the end of 1998. The outcomes of

these suits are uncertain. Despite the major Medicaid state settlements, lawmakers

Debt policy at ust inc. pdf

are expected to continue to push for new laws to combat youth tobacco use. Other

litigation against tobacco companies is expected to continue, especially suits filed by

individuals. This uncertain litigation and legislative environment makes the future

Adobe Photoshop cc 2018 mac torrent is the best application in design and imaging world out there, Designers can Creates and enhances photographs and also illustrate and 3D images. The software gives you the ability to Designs websites and also mobile apps Edit videos, simulates actual pictures and more. Tag Archives: Adobe Photoshop Adobe Photoshop CC 2018 19.0.0.24821 October 21, 2017 19 Comments Graphics & Design, Image Editing, MacOs Apps, Photography By conker. Adobe photoshop 7 for windos 10 free downlodd. Microsoft Windows/MacOS app 'Adobe Photoshop CC 2017' Torrent is rated with 4.5 points out of 5 on TorrentHood according to 11 ratings by visitors. Software is developed by Adobe Systems and it is suitable for Microsoft Windows/MacOS operating system with 32-bit or 64-bit version. FxFactory 7.0.7 torrent is Mac application which contains plug-ins from 28 developers. The basic function of FxFactory 7.0.7 pro is providing different visual effects. Adobe Zii Patcher is a well-known patching tool for Adobe product which can any version of Adobe Photoshop, adobe lightroom and adobe after effects with a single click. Adobe Photoshop Lightroom CC 2018 19.1.7 Edit, organize, store and share easily anywhere. Create amazing photos anywhere with the new Lightroom CC and 1TB of cloud storage.

cash flows of UST risky

B. UST is a dominant player and market leader and its strategy is to combat entrants by

launching similar products, rather than cutting prices. But the recent market erosion

by small companies has raised concerns. And UST’s “counter attack” has not been

effective in competing against price-value brands. The resignation of his CFO and

President of tobacco unit further raise the uncertainty of the company’s efficiency of

solving the market erosion problem.

C. The previous uncertainty is enhanced by a lawsuit that alleged that UST had violated

antitrust and advertising laws and participated in anti-competitive conduct. Should

UST lost the suite, it will be more vulnerable with competitors.

D. Although the current scientific research that ties tobacco to cancer is not conclusive,

it’s uncertain that future research result will jeopardize the tobacco industry.

E. There is a chance of a cultural shift against tobacco, and UST is unlikely to expand

to international market.

2. Why is UST Inc. considering a leveraged recapitalization after such a long history of conservative

debt policy? (Your answer should be more qualitative than quantitative!)

A. UST wants to increase the firm value by enjoying the huge tax shield provided by

more leverage. Previously, they were too concerned about the default risk thus

adopting a conservative capital structure strategy. Now they want to be more

aggressively levered since the chance of bankruptcy is rather low.

Debt Policy At Ust Inc Case Study Pdf

B. Presumably, the company managers are also shareholders. The recapitalization helps

to decrease the total shares outstanding, thus increases the relative percentage owning

Debt Policy Ust Inc Pdf Free

of the remaining shareholders. Consequently, the insiders will have more weights on

the voting of the major policies of the company. Since the value players form

Debt Policy At Ust Inc. Pdf

Continue for 2 more pages » • Join now to read essay Debt Policy at Ust
Download as (for upgraded members)
Debt Policy at UST Inc.
1. What are the primary business risks associated with UST Inc.? What are the attributes of UST Inc.?
Evaluate from the viewpoint of a bondholder. (Your answer should be more qualitative than quantitative!) The following factors weave into the risks and attributes of the company from the creditors’ point of view:
A. UST had seven pending health related lawsuits at the end of 1998. The outcomes of these suits are uncertain. Despite the major Medicaid state settlements, lawmakers are expected to continue to push for new laws to combat youth tobacco use. Other litigation against tobacco companies is expected to continue, especially suits filed by individuals. This uncertain litigation and legislative…show more content…

Debt Policy Ust Inc Pdf Download


(Your answer should rely on quantitative analysis supported by an explanation.)
(a)Assume a 38% tax rate.
(b)Prepare a pro-forma income statement to analyze whether UST will be able to make interest payments.
(c)For the basic analysis, assume the $1 billion in new debt is constant and perpetual.
UST should undertake the $1 billion recapitalization.
The marginal effect on UST’s value of implementing the recapitalization, assuming that the plan is implemented immediately on January 1, 1999, is equal to the sum of the tax shield minus the present value of financial distress.
VL = VU + Tax Shield – Expected Bankruptcy Cost à VL = VU + tD - PV (Financial Distress) à VL = VU + tD - (probability of bankruptcy * cost of bankruptcy) à VL = VU + tD - (probability of bankruptcy * (g * VU))
Where g is some constant that is usually valued between 5% and 30%
Therefore, the marginal effect is:
?VL = tD - (probability of bankruptcy * (g * VU))
= (0.38)($1billion) - (0.0028)(0.30)($6.5billion)
= $0.375 billion
Notes:
(1) The probability of bankruptcy is inferred using an AAA credit rating (from lecture notes). See spreadsheet, row “EBIT interest coverage ratio.” The ratio after recapitalization falls into the AAA rank which has a ratio of 12.9.
(2) g, or the constant fraction of VU that we lose in event of bankruptcy, is given a conservative estimate of 0.30 for conservative reasons.
(3) VU, or the value of