Case study: Debt Policy at UST Inc.

FIN 5204Managing Corporate Capital Investment and Capital StructureDebt Policy at UST Inc.

1. What be the primary business risks associated with UST Inc.? What are the attributes of UST Inc.? Evaluate from the vantage point of the bondholder.

Over the years, UST has been a dominant producer in the tobacco plant industry, specifically the moist tobacco industry. Even though the yesteryear strategy with UST has entailed raising the prices of its products on a regular basis, the party still shows signs of positive growth. Additionally, there prolong been recent issues with smoke-free tobacco products, such as lawsuits. However, there remains a constant consumer demand for UST products. When evaluating the business risk of a company, virtuoso of the primary drivers of its business risk stems from the price elasticity of its products. Thus, these are a few reasons that illustrate that the smokeless tobacco industry (UST?s almost dominant EBIT contributor) has a relatively launch demand curve and should be considered as having an inelastic consumer demand. Also, it is valuable to note that UST has products outside of its core operations in the wine and premium cigar market. Also, UST has introduced products in the price value market as consumer demand has increased.

Brand name and market position - superiorCash incline generating capacity- superiorCyclicality of revenues - superiorProduct variegation - poorGeographic diversification - goodAsset tangibility - goodLitigation Risk ? poorObviously, the two most troubling business risks associated with UST are its litigation and product diversification risks. The smokeless tobacco industry will always breast potential lawsuits because of the ongoing health concerns. Also, even though UST has alter into other markets (wine and cigars), these products are very minimally attributing to UST?s EBIT. Nevertheless, UST products have a steady demand for their products, they produce positive bills flows year-to-year, and the company has...

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