Iridium LLC

The following post has two assignments namely;

1.Iridium LLC

On Friday August 13, 1999 Iridium LLC filed for bankruptcy in the United States Bankruptcy Court in Delaware. The company, a $5.5 billion venture backed by Motorola, offered global phone, fax and paging services via satellite, but had been having trouble attracting customers since it began commercial service in November 1998. Despite almost $6 billion of investment, the assets appear to be worth less than $50 million. Your team of experts has been brought in to do a post-mortem on the Iridium experience and provide an analysis of the things that went wrong. 1. Based on DCF analysis and using the forecast in Exhibit 5, determine Iridium’s enterprise value, equity value and per share value. [HINT: when estimating per share value, make sure to make adjustments for non-equity claims and nonoperating assets, such as the proceeds from the warrant issue, preferred equity, and the off-balance sheet loan from Motorola.] 2. What are the important determinants of value in your DCF valuation of Iridium? How confident are you in your valuation? Compare your estimate to Iridium’s stock price at the end of 1998. 3. Why is APV a better general approach to valuation than WACC in this case? 4. Assess Iridium’s financial strategy. In your view, did it have the wrong target capital structure or issue the wrong kind of capital? How did Iridium justify its target debt-to-total book capitalization ratio of 60%? 5. What caused Iridium to fail: was it a bad strategy, bad execution or bad luck? If there are several factors, list them and evaluate their relative importance.

2.Effects of zero tolerance policing

1. Describe the effects of zero tolerance policing? 2. Describe how the media accurately and inaccurately depict the police.