Case Analysis: Debt Policy at UST Inc.

Class: MBA CS III

Name: Nisar Ahmed
CMS: 093-19-0011
Instructor: Dr. Suresh Kumar
Date: October 9, 2020.

Q1: In this set of problems, is leverage good for shareholders? Why? Is levering / un-levering the firm
something that shareholders can do for themselves? In What sense should shareholders pay a
premium for shares of levered companies?

Ans: Apparently leverage is good for shareholders because it has incremental impact on equity and
share price, but it is window dressing of accounts not real term expansion as it is clear from
statement that debt increases and company buy backs few shares from the market actually it is the
impact of playing with the figures only and as few investors are losing their share or why
shareholders will sale shares if they know after leveraging the worth of their shares will increase, but
company purchases back its shares because few investors know that in long run the share price of
the stock will decline due to leveraging risk.

Q2: From a macroeconomic point of view, is society better off if firms use more than zero debt (up to
some prudent limit)

Ans: According to macroeconomic point of view the debt will not better off because as if Bank will
give the funds which means induction of currency in the economy which will ultimately lead to
inflation and will this inflation cover the price increase of stock price I think that no and other
macroeconomic factor is demand and supply law as firms moves to leveraging it will increase the
demand of company shares in the market which will ultimately result in increase of share price so if
due to leveraging inflation and demand impact if covered in the growth of equity then the investor
or society is better off otherwise not.