McI Communications Corp

Published: 2021-09-13 22:05:09
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Category: Psychology

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MM5007 - FINANCE MANAGEMENTASSIGNMENTMCI Communications Corp.[pic 1]EMBA-56SYNDICATE 11 Ainanto Nindyo                        29116419Aristya Anggoman G        .        29116453Ria Noveria                        29116538MASTER OF BUSINESS ADMINISTRATIONSCHOOL OF BUSINESS AND MANAGEMENTINSTITUT TEKNOLOGI BANDUNG2017What message is MCI trying to send to financial markets?MCI annouce to the market that have a undervalued stock and want to announce a buyback program.a buyback at current price will be represent a Net Present Value and its potentially to greather than other.What will be the effects of issuing $2 billion of new debt and using the proceeds to repurchase shares on[pic 2]MCI’s shares outstanding?Share can be repurchased        :[pic 3]Outstanding shares                :[pic 4]MCI’s book value of equity?BVE pre                :[pic 5]BVE post                :[pic 6]the price per share of MCI stock?[pic 7]earnings per share?Bond A2                 = [pic 8]Interest                 = [pic 9]EPS post         = [pic 10]What is MCI’s current (pre-repurchase) weighted average cost of capital (WACC)?[pic 11][pic 12]Rf (10yrs)  = 5,697%Rm         = 7%Beta         = 1Ke = Rf + (Beta x Rm)Ke = 5,697% + 1 (7%) = 12,7%We = 9,602 / (3,944 + 9,602) = 70,9%Wd = 3,444 / (3,944 + 9,602) =29,1%[pic 13][pic 14]What would you expect to happen to MCI’s WACC if it issues $2 billion in debt and uses the proceeds to repurchase shares?DE pre  = 3,944 / 9,602 = 0,41Beta unlevered = 1 / 1 + (0.41 * 0.6) = 0.8        DE post = (3,944 + 2,000) / (9,602 – 2,000) = 0.78        Beta re-levered = 0,8 * [1 + (0.78 * 0.6)] = 1,17Kd = 6,46% (assume bond rating decrease to BBB1)

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