Lead Questions for Polaroid Corp.

1. List the recent highlights of Polaroid as a business entity. Comment on its products, innovations,
competitors, investment needs, geographical presence etc.
2. Look into forecast figures in Exhibit 6; what kind of practical uncertainties you can see around the
projections. How these uncertainties could impact firm’s FCF and hence value. Try to see the
upside as well as downside of missing the projections. Which way do you think we may miss more.
3. After analyzing the uncertainties, comment on the value of option to access capital market
qualitatively. This is how we can learn about retaining flexibility by a firm.
4. Analyze debt requirements of firms facing similar circumstances as Polaroid. Reflect upon our
class discussion in the previous class.
5. Looking onto the competitors can we infer something about the existing rating of Polaroid. What
factors might have influenced bond rating of a firm.
6. Try to value the share price using DCF assuming WACC as 10% and growth of FCF after 2000 at
6%. Use FCF from Exhibit 6. Comment on the value you identified after comparing this with current
stock price in the market. Comment/reflect on the assumptions; how wild were those.
7. Use data from Exh 12, 9 and 1 to estimate market based debt/capital ratios. Using current firm
value of Polaroid, estimate the maximum/average debt capacity implied by each rating. Comment
on the current debt capacity employed by Polaroid with respect to the implied capacity for each
rating.
8. Estimate interest expenses by using pre-tax cost of debt and implied debt capacity in previous
question. Use Exh 6 figures for average EBIT of projections as normalized EBIT and downside
EBIT to calculate two different Interest coverage ratios (ICRs) for each rating. Comment on the
existing ICRs.
9. Can we now see which rating is justified for Polaroid? Comment.
10. Use Hudson Guaranty estimates to calculate WACC for each rating. Use weights as estimated in
Q. 7 above. What do we find here for justified rating of Polaroid?
11. What can we infer for the suitable capital structure by the analysis above. Should Polaroid issue
more debt or equity at this stage? What are the pros and cons of issuing any of this.