Eka Taruna
Satam
Tegun Kamilius
Prayogi Purnapandhega
Company Profile
MCI Communications Corp.was
Overview
Most of 1995, MCI's stock had been a
sluggish performer which is growing
restlssness on the part of shareholder
= 4870
= 9602-2000=7602
Npost
609
Npo st
609
E PSpost
EPSpost
0.8
609
609
EPSpost
V
l1
a
u
e
5
%D
e
b
t
E
q
u
i
y
8
5
%
D
E
rD
rE
V
V
WACC (1 Tc )
WACC= (1-0.4)(0.15)(6.1)+(0.85)(12.7)=11.3%
V
a
lu
e
2
7
%D
e
b
t
E
q
u
i
t
y
7
3
%
Given the increase in D/E, debt rating is assumed to go below A1, but
above BBB1 and the pre-tax cost of debt is assumed to increase from
6.1% to 6.3% (See Exhibit 3.)
Then,
WACC= (1-0.4)(0.27)(6.3)+(0.73)(12.7)=10.3%
Conclusion
Repurchasing some of the company's stock were
succeed to enhance shareholder value
CL
LTD
Deferred taxes and others
4,870
3,444
1,385
Shareholders equity
9,602
CL
LTD
Deferred taxes and others
4870
5444
Shareholders equity
Before repurchase
Approximate value of debt = 3,444
Approximate value of equity = (27.75)(681) = 18,898
Approximate debt-equity ratio = (3,444/18,898) = 18%
After repurchase
Approximate value of debt =
Approximate value of equity =
Approximate debt-equity ratio =
Market-to-book ratio
Before repurchase
Book value per share = ($9602)/681 = $14.10
Market-to-book ratio of equity = $27.75/$14.10 = 1.97
After repurchase
Book value per share =
Market-to-book ratio of equity =
Earnings per share.
Before repurchase
EPS=($573)/681=$0.84
After repurchase
EPS=
N = 2000 = 2000 = 72
P pre 27.75
P = P P x shares =
P x shares
NI/shares NI/shares
LTD 3444
9593
0.359 0.359
609
BV of Epost =
9593x
8579
681
EPSpost
EPS
$573 $2000 x
Exhibit 2.
609
$181
x 0 .4
$3444
0.87
EPS
$573 $2000 x
609
$181
x 0 .4
$3444
0.87