When discounting future dividends, use a 10% discount rate and a 38% tax rate.

 When discounting future dividends, use a 10% discount rate and a 38% tax rate. Assume that stock market participants are unaware of the repurchase operation and that the additional debt is continuous and unchanging. 
1) Which are UST’s main business risks? Consider them from a bondholder’s perspective. 
2) After so many years of careful debt management, why is UST contemplating a leveraged recapitalization? 
3) Should the $1 billion recapitalization be carried out by UST? To determine if UST will be able to pay interest rates, create a pro forma income statement for 1999. To what extent does your judgement depend on the rating given to UST bonds?  
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