UST Questions

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  • 8/10/2019 UST Questions

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    Fin 401

    Ryan Pratt

    Questions for UST

    Instructions: Carefully study the UST case and do the analysis necessary to thoroughly answer the questions

    elow! Pre"are and attach e#hiits that e#"lain your decisions! $ood answers will e ac%ed u" with

    quantitati&e su""ort whene&er "ossile 'use the financial analysis s%ills that you ha&e studied(! The case wille graded ased on the quality of your re"ort) including the accuracy of your quantitati&e analysis) the

    strength and thoroughness of your argu*ents in su""ort of your decisions) and the quality of the e#"osition

    'e!g!) write clearly) a&oid ty"os) for*at e#hiits nicely(! This case is worth +, "oints!

    1. UST has a long history of conservative debt policy. Briefly describe why UST is

    considering a recapitalization that involves issuing debt and repurchasing equity.

    2. escribe the pros and cons of the recapitalization fro! the perspective of the tradeoff

    theory of capital structure. "hat are the biggest concerns you have#

    $. Should UST underta%e the &1 billion recapitalization# 'alculate the effect on UST(s stoc%price assu!ing that the entire recapitalization is done i!!ediately )i.e.* +anuary 1* 1,,,-. To

    si!plify things* assu!e that the recapitalization will have no significant i!pact on the

    probability of financial distress.

    . /s the assu!ption that the recapitalization will not i!pact the probability of financial

    distress a good one# "hy or why not#

    0. valuate the !erits of the recapitalization in the fra!ewor% of the pec%ing order theory of

    capital structure. valuate its !erits in the fra!ewor% of the agency theory of capital

    structure.