Mci Communications

As shown in the financial income statement (Exhibit3), Intel Corp. (INTC) has a capital structure consisting most of equity. Intel has very little debt in its capital structure and the cost of debt would have only a marginal effect on the overall cost of capital. The current capital structure of Intel is not optimal yet since optimal capital structure is making minimum weighted-average cost of capital.

Based on the Exhibit 9A in the case, we can calculate the Source and Use of Funds. As Exhibit 1 suggests, the company require about $4.8 billion during 1984 and 1990. This is basically due to the required new capex during the same period, which will be accumulated to $10.2 billion, and the increase of cash holding, $2.0 billion, as a use of funds and the company can generate funds from operation, only $7.8 billion. Therefore, the company needs to fill the gap by sourcing external finance of about $4.8 billion. This amount will vary depending primarily on two factors; 1) whether MCI can expand market share as forecasted amid the increasing

As shown in the ratios chart, working capital has increased by $13M. Maturities of short-term investments and cash flow from operations are projected to be sufficient to sustain the company’s overall financing needs, including capital expenditures. The following corporate strategic plan identifies a project that needs financial backing.

The 20%/9% Bonds and Common Stock option does not generate as positive capital structure as 50%/50% option. Although EPS scores are the same for year nine, net income is reduced to 39,680 due to having to pay interest of 14,400 on bonds while the 50/50 option generates a net income of 49,049 and pays no interest on bonds and issues dividends. In year ten, both capital structures offer an EPS of .032 however the net income is 9,380 less than the 50/50 option. In years 11, 12, and 13, the 20%/9% Bonds and Common Stock option EPS and net income results decline while the EPS and net income results increase for the 50/50 option.

Many small companies use debt financing to achieve financial goals. Some choose to use debt consolidation financing. By having a wide range of financing options available, a company is able to get their business up and running faster. This paper will examine three options of financing for Scott Equipment. The aggressive, moderate, and conservative financing options will be calculated and compared in order to determine the best option for Scott Equipment.

As shown in the ratios chart, working capital has increased by $13M. Maturities of short-term investments and cash flow from operations are projected to be sufficient to sustain the company’s overall financing needs, including capital expenditures. The following corporate strategic plan identifies a project that needs financial backing.

Financing requirements of the company can be determined by calculating the cash requirements of the company by adding the working capital needs and capital expenditure needs of the company. Working capital needs can be calculated by subtracting current liabilities from current assets of the company. Current assets of the company will remain significantly lower than current liabilities for next three years. Working capital needs of the company come out to be $17.523 million, $21,028 million and $21,028 million for years 2010, 2011 and 2012. Capital expenditures of the company will remain at $0.9 million for all three years. Adding the values of working capital needs and capital expenditure needs for all years and by subtracting these values from net income, we can calculate the external financing required by the company to meet the cash needs for next three years. As shown in calculations in excel sheet, external financing requirements for the company come out to be $15.231 million for 2010 and $18.091 million for 2011 and 2012 respectively.

We assume linear increase in the EBIT and EBITDA at 3% for 1999 from 1998 figures. Considering the debt will be long-term, we test both 10- and 20-year corporate yields as interest rates to see what would be the coverage ratios, using the 1999 projected figures.

The following report contains a critical analysis of the capital structure strategy employed by Leighton Holdings Ltd during the Global Financial Crisis (GFC) and also an assessment of optimal capital structure Leighton should use to fund future investments.

Our analysis attempts to answer the question, “What are the things a company must consider when analyzing a new investment or project?” According to the text, a firm’s first objective when deciding to take on new debt should be that its return on net assets (RONA) should be greater than its weighted average cost of capital (WACC). Since we are working with an income statement only and do not have an amount for net assets, we will instead use return on invested capital (ROIC), which measures how well a company is using its money to generate returns. Comparing a company 's return on capital (ROIC) with its cost of capital (WACC) reveals whether invested capital was used effectively. From our spreadsheet calculations we see that using our estimated operating profit provides us with a 19.9% return on invested capital with only a 7.2% weighted average cost for that same capital. If these numbers are even close to correct, George should definitely make the move.

Analysing the historical values of the operating margins from the Income Statement, we forecast values for the 2007-2009 period. The executives of BKI expect the firm to achieve operating margins at least as high as the historical ones. Thus, we took averages and slightly adjusted them toward higher values. Since the declining tendency in the last three years was cause by integration costs and inventory write-downs associated with acquisitions, which already have been completed. To the EBIT, estimated by using those margins, subtract the taxes, Capex, adjust for Depreciation, Amortization and change in Working capital. The capital expenditures were just over $10m on average per year. The company is expecting the Capex remain modest. Thus, we assumed a Capex of $10m for the next three years. We estimated Net Working Capital by using the average ratio of NWC/Net income of the last three years.

Analysis and notation of a companies’ actualized capital structure and payout policies serves as a temporal exposé; much can be reveal regarding how the company is managed and how such data bodes for the future. Therefore, a comprehensive appraisal of GMs current conventions pertaining to financing is capable of functioning as a test of overall forward virility or debility. Ratiocinations can be drawn based on the policies uncovered and insights gained.

A company needs to obtain capital for expansion into new markets and it wants to obtain these funds from external sources. The ways in which company chooses to obtain these funds depends upon the short-term versus long-term financing strategies of the company. As a finance manager for a Fortune 500 company, the plan is to borrow approximately $100 million within the next year, and the manager must present to the board the best option for this large financing. By evaluating the different types of funding options, the finance manager can make the best informed decision for this capital funding. It is ideal for a company to maximize the total value of the company and minimize the overall cost of capital (Shim, Siegel & Dauber, 2008). These decisions include whether to issue debt securities, or obtain financing from individuals and whether the funding should be secured or unsecured. Any capital structure decisions will take into account the nature of the business, strategic plan of the company, its current capital structure and its anticipated growth.

Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.

L1 - Modigliani & Miller (1958) ‘The Cost of Capital, Corporation Finance and the Theory of Investment’