Mci Coorporation

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1. What is the likely level of MCI’s external financing needs over the next several years?
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
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Why?
We suggest that the company should take the option 3. Firstly, as mentioned in the above, the company requires $4.8 billion during 1984 and 1990 and option 3 can provide largest fund compared with option 1 and 2. Secondly, the option 3 incurs the least interest rate, 7.5%. Thirdly, even though the company needs to increase the debt ratio in the short run, they can adjust it later with the conversion option, which gives the company flexibility for capital
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