UST Inc.
1.
Assess the business and financial
risk of UST Inc.
2.
What are the benefits of debt in
the case of UST Inc.?
3.
Exhibit 4 provides pro forma
debt/total capital ratios. What interest
rate do you expect UST Inc. to pay for these various debt levels?
4.
What are the costs of debt? For
example, should management worry about the possibility of bankruptcy?
5.
What is optimal capital structure
for UST Inc.? Do you expect the new management team to implement a
recapitalization plan similar to what you have proposed?
6.
Compute the WACC given the proposed
recapitalization.
7.
The employees of UST Inc. are
encouraged to buy UST stock. If
management goes forward with a recapitalization, what impact will it have on
employees’ willingness to hold UST Inc. stock? What happens to the equity risk
of UST Inc.?
8.
How will the stock market respond
to the announcement of the proposed recapitalization?
9.
How will the recapitalization
affect the book equity of UST Inc.?