Du Pont Case

INTRODUCTION Du Pont, the largest chemical manufacturer, has been historicall(a)y known for its financial stability and sparing crisis debt to equity ratio which maximized funding tractability and protected the craft from many financial constraints. Several free-enterprise(a) conditions posed a challenge to its risk averse financial policy as the 1970s was characteristic of a declining level of industry demand and price, on with rising fuel prices and an economic recession. This caused the firm to deviate from its all equity capital structure and sole use of internally generated monies to fund projects. The company cut its dividends and began using debt as a source of financing. Recognizing the problems associated with this and were able to reduce their debt levels and maintain a troika A bond ratio. However, at the crucial moment of grazing down its debt levels, the company decided to go in the adversary direction and used more debt to acquire Conoco Inc., a study oil company, at a very high premium, with obscure synergies. This worried investors and the increase in debt downgraded their bond rating to AA for the for the first time time in the companys history.

Together with growing second of other concerns - heightened operational risk and competition, volatile debt ratios, compressed vex coverage, and an uncertain macroeconomic environment - Dupont needed to define, commit to and transmit a capital structure policy that allow fored it to maintain its competitive position. This understanding led to a choice of either a 25% or 40% target debt to capital ratios. 25%DEBT SCENARIO Ignoring the path to the target, a 25% debt to capital ration would allow Du Pont much needed financial flexibility to withstand economic shocks. Given the high-fixed costs of the business, volatility of Conocos reveunues, and high meshwork financing requirements over the medium-term (561% projected growth from 1983 to 1987), financial flexibility would be a welcome reprieve in the payoff of a third... If you want to get a full essay, holy order it on our website: Ordercustompaper.com

Ordercustompaper.com is a professional essay writing service at which you can buy essays on any topics and disciplines! All custom essays are written by professional writers!