Mci Case

1.What is the likely level of MCI's external needs over the next several years? By how much could they reasonably be expected to vary? Why? 

MCI’s external needs will continue to expand for the next decade according to increasing projected market expansion (20% in the next 6 years) and decrease in operating margins due to more competition. The only alternative for the company is to realize the projected market share increase forecasted on Exhibit 9 is to invest more in its network since the telecom industry is extremely capital intensive. For example, in 1983 in order to raise $1 of revenue, $1.15 needs to be invested in plant and equipment first.

MCI’s operation margin is expected to be 15% in 1990 and stay relatively steady since by that time it is expected that the company would have built the needed infrastructure and focus on retaining customers while signing up new customers. Furthermore, competition in the industry would have an impact on the operational margins which reflects their external needs. “Dual pressure of higher access charges and increased competition from both AT&T and other long-distance suppliers” could affect the operational margin to fluctuate between 8% and 22%. For example, if there are unfavorable regulatory and legislative actions combined with very aggressive competitors the operation margin can decline from 15% to 8%. The lost 7% in operating margin (22% in sales) has to be compensated by additional debt or equity financing.

  | *All values divided by 1,000,000 | Pro Forma Balance Sheet |

  | market share | 4.0% | 6.2% | 9.6% | 13.5% | 18.6% | 19.8% | 20.0% | 20.0% |

  | Balance Sheet | 1983 | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |

Assets | Cash, cash equivalents | 542 | 442 | 342 | 192 | 99 | 99 | 99 | 165 |

| Accounts receivables (1) | 162 | 251 | 389 | 547 | 753 | 802 | 810 | 810 |

| Other (1) | 9 | 25 | 22 | 30 | 42 | 45 | 45 | 45 |

| Current assets | 713 | 718 | 753 | 769 | 894 | 946 | 954 |...