Iridium: High Yield Debt
1) Calculate Iridium’s intrinsic value. (Excel sheet) Note that the method is CCF instead of DCF. Study the two methods and know the difference. Use Risk Premium of 7.5%. Compare with market value and analysts estimate.
Kindly refer excel sheet
2) Why did Iridium fail – Strategic reasons
The strategic reasons for the failure of Iridium are the following:
All the above strategic reasons contributed significantly towards the failure of Iridium.
3) Why did Iridium Fail – Financial Reasons. Each group should note the advantages and disadvantages of Bank Debt and Senior notes.
Advantages of Bank debt
Bank loans money to the business on the basis of the business and its capacity to service the debt by making timely payments.
Banks do not take any ownership position in the company. Bank never gets involved in any aspect of running a business to which a bank grants a loan.
Once the loan is paid off then there is no relation or involvement with the Bank.
The interest on the Bank loans is tax deductible.
Disadvantages of bank debt
Bank loans are difficult to obtain unless company has a good track record and or valuable collateral. Banks will mostly lend to the businesses which has capacity to repay it. Borrowers can be required to provide personal guarantees which in case of non -payment can be seized. Interest rates for the Business loan can be quite high and Borrowers need to service the debt by making timely payments which in case of non-payment can have several repercussions.
Advantages of Senior Note
Senior notes carry relatively low interest rates.
Senior debt is relatively easy to raise as compare to normal debt.
Disadvantages
In the event the issuer goes bankrupt, senior debt must be repaid before other creditors receive any payment. It is mostly backed by collateral and usually it covers most assets of the organization
Following are the financial reasons for the failure of Iridium
Iridium's target customers consisted
Kindly refer excel sheet
2) Why did Iridium fail – Strategic reasons
The strategic reasons for the failure of Iridium are the following:
All the above strategic reasons contributed significantly towards the failure of Iridium.
3) Why did Iridium Fail – Financial Reasons. Each group should note the advantages and disadvantages of Bank Debt and Senior notes.
Advantages of Bank debt
Bank loans money to the business on the basis of the business and its capacity to service the debt by making timely payments.
Banks do not take any ownership position in the company. Bank never gets involved in any aspect of running a business to which a bank grants a loan.
Once the loan is paid off then there is no relation or involvement with the Bank.
The interest on the Bank loans is tax deductible.
Disadvantages of bank debt
Bank loans are difficult to obtain unless company has a good track record and or valuable collateral. Banks will mostly lend to the businesses which has capacity to repay it. Borrowers can be required to provide personal guarantees which in case of non -payment can be seized. Interest rates for the Business loan can be quite high and Borrowers need to service the debt by making timely payments which in case of non-payment can have several repercussions.
Advantages of Senior Note
Senior notes carry relatively low interest rates.
Senior debt is relatively easy to raise as compare to normal debt.
Disadvantages
In the event the issuer goes bankrupt, senior debt must be repaid before other creditors receive any payment. It is mostly backed by collateral and usually it covers most assets of the organization
Following are the financial reasons for the failure of Iridium
Iridium's target customers consisted