E.I. Du Pont de Nemours and Company – 1983 Harvard Case Solution & Analysis

E.I. Du Pont de Nemours and Company – 1983 Case Solution

Review of rubrics

To review the certain issues under the two options implemented for the capital structure, the critical evaluation would guide the company to analyse as to which option would be preferable to ensure long-term success.

Issue 1

A: The first thing to consider for the company’s current performance is to review its historical conservative capital structure policy, which was the key indicator for the company’s success over the decades, but the changes in economic conditions during 1970s had led to pressurize the company to change its conservative policy into an alternative debt policy. Therefore, in order to recover the profitability and net earnings, the company went through increasing the short-term debt to meet the requirements of additional capital expenditure and to maintain the competitive position within the market.

B: It is analysed that with the historical policy, there was no tax shield over the earnings, it means that the more equity taxes would bear the cost and decrease the earning per share of the company. If the alternative policy would be applied, then the taxes would bear by the debt provider, which would increase the earnings after tax as well the earning per share of the company

C: It is also determined that if more equity would involve in the capital structure than the company would not recover its operational demand over the use of capital expenditure and therefore decline its position in the fortune 500 and move out from the competitive position.

Issue 2

According to the company’s capital structure policy, the dividend payout ratio was not going well in the company’s conservative policy because the changes in the economic situation had hindered the performance to increase the earning per share, which is subject to the company’s dividend per share. So with the additional need to invest in the capital expenditure, if the company would go for the traditional way, then the certain ratio of dividend would decrease due to high cost of sales. However, if DuPont would apply the alternative dent policy, then the sudden increase in the dividend payout would increase due to increase in the earnings of the company. Therefore, 40% of debt holding would achieve the desire dividend policy.

Issue 3

A: There are some issues in the acquisition of DuPont with Conoco; the first issue addresses the potential threat of survival in a competitive industry due to certain decrease in the prices of oil and coal in US. In order to achieve the results, the former policy would not be preferable because the merger wanted to expand the products of Conoco for maximizing the profits as well as increase the shareholder’s interest and stock shares. The additional financing requirements of capital expenditure would also not be achieved, if the larger portion of the company would consist of equity instead of more debt amount. ..................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Other Similar Case Solutions like

E.I. Du Pont de Nemours and Company – 1983

Share This