Mci Harvard Case Solution
The MCI’s source of funds has been emission of stocks. Common stocks as IPO of 6M shares and $27.070.000,00. An issue of 9.600.000,00 common stock 5 years warrant attached.
What have been MCI sources of funds in the past (1972-1983)? What’s your opinion?
Around 1972 MCI issued equity and later on time when the company started going well they issued debentures and convertible debentures. The main raison to do that is because equity cost use to be higher. First of all they issued debentures but they realise that the convertible debentures had lower cost of capital and they started issuing them. Due to the high growth of the company the stock price rise a lot during the time and therefore they converted the convertible debentures to common stock increasing its equity. After that they issued convertible bonds that provided a cost effective way for MCI Communications to finance the capital investments they had during the high growth of the company.
As the stock prices rose over the time MCI forced the conversion to eliminate interest payments. They issue convertible debt and as stock prices raised a lot they reduce the leverage converting it into stocks.
As the company was growing at good levels the stock price was suppose to rise. That way of financing in my opinion was a good way to finance the company due to the problems they would find in the banks and in the bonds markets. As the investors trust in the growth of the company they accepted a low rate coupon because of the expected an appreciation if the MCI stock price goes up. My opinion would be related mainly to the structure of the capital. As the debenture issued is convertible, we could say they are issuing elevated values of this kind of debt (Equity) and maybe increasing the risk and the expected return of investments.
Please, calculate the funding gap for the next years through a cash flow statement?
Due to the higher competitiveness of the market due to the new regulations the company will
What have been MCI sources of funds in the past (1972-1983)? What’s your opinion?
Around 1972 MCI issued equity and later on time when the company started going well they issued debentures and convertible debentures. The main raison to do that is because equity cost use to be higher. First of all they issued debentures but they realise that the convertible debentures had lower cost of capital and they started issuing them. Due to the high growth of the company the stock price rise a lot during the time and therefore they converted the convertible debentures to common stock increasing its equity. After that they issued convertible bonds that provided a cost effective way for MCI Communications to finance the capital investments they had during the high growth of the company.
As the stock prices rose over the time MCI forced the conversion to eliminate interest payments. They issue convertible debt and as stock prices raised a lot they reduce the leverage converting it into stocks.
As the company was growing at good levels the stock price was suppose to rise. That way of financing in my opinion was a good way to finance the company due to the problems they would find in the banks and in the bonds markets. As the investors trust in the growth of the company they accepted a low rate coupon because of the expected an appreciation if the MCI stock price goes up. My opinion would be related mainly to the structure of the capital. As the debenture issued is convertible, we could say they are issuing elevated values of this kind of debt (Equity) and maybe increasing the risk and the expected return of investments.
Please, calculate the funding gap for the next years through a cash flow statement?
Due to the higher competitiveness of the market due to the new regulations the company will