mechanics of moving to the optimal valuation

analyze AT&T

  • If your firm’s actual debt ratio is different from its “recommended” debt ratio, how should they get from the actual to the optimal? In particular,
  • Shouldtheydoitgraduallyovertimeorshouldtheydoitrightnow?
  • Shouldtheyaltertheirexistingmix(bybuyingbackstockorretiring debt) or should they take new projects with debt or equity?
  • What type of financing should this firm use? In particular,
  • Shoulditbeshortorlongterm?
  • Whatcurrencyshoulditbein?
    Whatspecialfeaturesshouldthefinancinghave?
  • What type of cash flow (dividends, FCFE, or FCFF) would you choose to discount for this firm?
  • What growth pattern (Stable, 2-stage, 3-stage) would you pick for this firm? How long will high growth last?
  • *What is your estimate of value of equity in this firm? How does this compare to the market value?
  • **What is the “key variable” (risk, growth, leverage, profit margins, etc.) driving this value?
  • If you were hired to enhance value at this firm, what would be the path you would choose?

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