Group Case 3: Mci Communications Corp., 1983

Group side 3 MCI Communications Corp. , 1983 Executive Summary Assumptions The following argon the assumptions we make through the whole analysis. The predicted revenues from 1983 to 1990 were assumed to follow the pattern in lay out 9A, despite the uncertainty of the higher entryway charge and competition increase. The marginal tax rate is 30% during that period. The firm must keep nominal interchange balance of $100 million to support its operating activities.However, the adjustment of operating NWC is assumed to be zero. Calculation To calculate the external backing needs during the period 1983-1990, we need to calculate the net cash race from operation (i. e. the free cash flow minus after tax-interest paid). on with the cash at the beginning of the year and the required minimum cash balance, we can get the external support need for each year. name detail calculation in confront 1.However, due to the uncertainty of access charge change and competition, the operating margin would increase or slack by as much as 7% from the prediction, although the management was commit to the predicted revenue levels. Therefore, the external financing needs would vary correspondingly. See detailed calculation in Exhibit 2, and 3. The external financing needs beneath three scenarios are summarized below. In 1983, the company had no external financing needs, as it just raised $400 million in March.From 1984 to 1987, the financing needs kept increasing, as the company tried to expand. After that, there was no external financing need as the earnings are in good levels, except in the case of unfavorable shoes where it still needs $270. 78 million in 1988. pic Recommendations & Conclusion pic Exhibit 1 in operation(p) Margin at Predicted levels pic Exhibit 2 in operation(p) Margin Decreased by 7% pic Exhibit 3 Operating Margin Increased by 7%