Debt Policy At Ust Inc. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Debt Policy At Ust Inc Case Study Help

Future Dividend Payments

It could be seen in the appendix 2 that the dividend payout ratiois representing a decreasing trend because of the recapitalization impact. Because of low earnings, the dividend payments would also get impacted with a same margin. Furthermore, as the debt increases, the debt to equity ratio would also increase with the same margin. The Smokeless Tobacco Master Settlement Agreement was signed by the company in November 1998, in order to restart its stock repurchase program and resolve its liability issues.(V Kumar and D Shah, 2009).

The analysis is performed in such a way that it compares the EPS, price to earning ration and the market equity of the company at different debt levels for the year 1999. The analysis shows the tax shield calculations and outstanding shares, along with therepresentation the total capital of the company. The tax shield of the UST would be $0, while with the capitalization of $1 billion, the UST’s value would be $132.02, and $108.01 with the capitalization of $1.5 billion (See appendix 2). In addition to this, since 1912, the company is paying uninterrupted dividends, recapitalization would help the organization to pay its dividends with the same margin because the stock repurchase. Thus, the remaining stock’s dividend payments could bemanaged effectively.

Recommendations

After evaluating the entire information with the help of stated facts and figures, it is recommended that the company should perform recapitalization but with a minimum amount in order to cope up with this current issues. Without capitalization, the UST’s value would be $474, whereas with the capitalization of $1 billion, the UST’s value would be $425. The tax shield of the UST would be $0, whereas, with the capitalization of $1 billion; the UST’s value would be $132.02 and with the capitalization of 1.5 billion USD, its value would be $108.01 Thus, it is recommended that the recapitalization would yield increased revenues and would help the organization in order to meet its daily operations. In addition to this, since 1912, the company has been paying uninterrupted dividends, recapitalization would help the organization to pay its dividends with the same margin because of the stock repurchase. Thus, the remaining stock’s dividend payments could be managed effectively.

Conclusion

To conclude, the company is widely identified for its high dividend payout and traditional debt policy in the market since 1912. In July 1993, tobacco smoke got classified as the human carcinogen. The board of directors at UST Inc. decided to acquire a $1 billion loan for five years in order to start its stock repurchase program, in December 1998.It is recommended that the company should perform recapitalization but with a minimum amount, in order to cope up with its current issues. Without capitalization, the UST’s value would be $474, while with the capitalization of $1 billion, its value would be $425........................................

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