Case #2 (Du Pont)

Case #2 (Du Pont) - FIN 450 Du Pont Case # 2 Submitted to:...

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FIN 450 Du Pont Case # 2 Submitted to: Prof. Thomas J. Paup Date: September 26, 2007
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09/26/2007 Du Pont The Problem The rising costs of oil and the resulting high cost of production for Du Pont in 1983 sent them to acquire Conoco, Inc., a major oil company, for $8 billion. This acquisition forced Du Pont to issue $3.9 billion in common stock and $3.85 billion in floating-debt. In the past Du Pont had zero debt and therefore had a AAA bond rating but since this new acquisition Du Pont was downgraded to a AA bond for the first time in its history. The problem at hand is to determine how Du Pont should set up their capital structure either by increasing debt or decreasing debt like in the past. Analysis of the Problem It has been suggested that Du Pont would like to either target a 25% debt to capital ratio in hopes of upgrading their bond to a AAA again, or a 40% debt to equity ratio to ease some of the financial stress. Both of these options would offer the company positive effects and both would offer negative effects. Reducing the debt to equity ratio to from
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Case #2 (Du Pont) - FIN 450 Du Pont Case # 2 Submitted to:...

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