{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ustcase - UST Corp Basic Facts Firm has very little debt...

Info icon This preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
UST Corp
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Basic Facts Firm has very little debt Firm has a dominant market position Firm is extremely profitable, high free cash flows Firm pays out most excess cash flow in form of dividends or repurchases Book debt = 100.0 Book assets = 913.3 Book equity = 468.3 Market equity = 6,470.8 Net income = 467.9 Op. Cash Flow = 429.5 Capital expend. = 35.5 Dividends = 301.1 Repurchases = 151.6
Image of page 2
Proposed Recapitalization Plans Issue $1,000 in debt and repurchase $1,000 additional stock Corporate tax rate is 38% (federal plus state) Each year firm will save (38% x r x 1,000 million) in taxes Assume that they keep this debt level in perpetuity, refinance bonds when they mature Value of perpetual tax savings: (.38 x r x 1,000) / r = $380.00 million
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Repurchasing Shares UST stock price at end of 1998 was $34.88 If they announce the repurchase will be financed by new debt, will UST be able to repurchase at $34.88 per share? Shareholders’ choices : Tender at $34.88 Do not tender-after repurchase stock price should increase to reflect the increased value from the tax savings
Image of page 4
Stock price before announcement = $34.88
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern