MCI case study

June 1972, imitate began construction of Its telecommunications network. Funding MN shares (common stock) SO, In total after commission $27. 1 MN Summon of credit from banks $6. Man from private investors imitate still rely on AT&T facilities to carry calls from its subscribers to mimic transmission centers in each metropolitan area. PAYOFF, MIMIC revenue $6. MN, losses of $38. 7 MN. MIMIC has exhausted its credit from its banks. MIMIC sold shares for $8. MN. 1976, exeunt service. And revenue started roaring. 1976 revenue, 28. N, first profit $100,000 1977, 62. MN Between 1976-1978, lease pay of new fixed Investment was the only substantial source of bills available. 1978, withdrawal of the courts exeunt DCE. 1978, public market to issue convertible preferred stocks. Preferred offerings allowed MIMIC to retire its diddle to intermediate term bank debt and to issue further debt of a longer term kind. 1980, MIMIC provided executions residential customers. Strong growth but constr ained only by a lack of investment capital. July, 1980. Leasing actuality decreased.FYI 981 , require for investment fund Intensified. Offer convertible bonds. Jan. 1982 Antitrust settlement between AT&T and LIST. department of Justice. AT&T will need to break up before 1984. Economics of scale and stage setting are important basic call service and value added services. Increase In access find fault after the AT&T antitrust settlement 1 . What are the business problems facing MIMIC? After the settlement of antitrust case of AT&T, the differential In access charges will be phased out through and through charging MIMIC 80% more and this In turn Increased Mis operation expense.MIMIC could recede its cost advantage to the competitors and lead to decreasing sales and profits. AT might also reduce its legal injury to prevent its erosion in market share. AT communications was the main competitor. MIMIC need control 20 digits ATT dial 11 digits. 2. How do these business problems tran slate Into financing problems? More we can butt against the graph, we saw a sharp rise in both remote financing and internal financing, with external financing even a bit higher than internal financing. 3. To what extent can traditional financing strategies work for MIMIC?It is getting more expensive for MIMIC to acquire further funding through issuing debts and MIMIC will become more risky if take on further debts If MIMIC simply issue justice, public might read this move as the stock has been overpriced and at one time the firm is trying to push down the price. Thus, the share price of the firm might go down. 4. ground on project financial statements in the case income statements, balance sheets, and projected capital expenditures calculate Mis projected needs for external financing during the historic period 1984 through 1988 inclusive, for each socio-economic class.Analyses the consequences of alternative financing policies of MIMIC during these years as sequences, such as first debt, then equity, then debt again as needed on the projected financial condition of MIMIC in the (fiscal) year 1990, in terms of measures such as debt to equity ratios and interest coverage ratios. 5. Suppose that for its initial financing trance of $1 Billion by the end of 1984, MIMIC decides to choose NOW between a Straight Debt issue of 20 year maturity with an interest rate of 12. 5%, with no sinking funds (early repayments), versus a ConvertibleDebt issue of the same(p) size, of notional maturity 20 years with an interest/Coupon rate of 7. 75%, and a innovation price of $ 55 per share. Assume further that IF the conversion option is not exercised within the following 5 years then it would expire (unlike in the case), and this would continue as (cheap) debt. Which of these two debt issues should MIMIC choose in March 1983, to maximize shareholder value? Assume that annual standard deviation of returns on Mis equity value are either 20% or 30% and that the interest ra te on (safe) MIMIC debt equals 12. 5%.