The CEO of UST would like you to prepare a three to four page case report discussing UST’s currentfinancial situation and the implications of increasing leverage in UST’s capital structure. The firm isconsidering a $1 billion increase in long-term debt. Assume that the debt would be taken onimmediately and held in perpetuity. The $1 billion would be used immediately to repurchase shares.Also assume that the top marginal tax rate is 38 percent. The following questions should be addressedwhen preparing the report for the CEO:1) Provide an overview of UST’s business operations. In your presentation, feel free to providevisual detail of the type of products UST sells to its customers.2) Compile a list of factors that a credit analyst or potential bondholder would take into accountwhen evaluating UST’s proposed recapitalization. Discuss the important factors.3) Why is UST considering a leveraged recapitalization after such a long history of conservativedebt policy?4) Comment on the past and future financial performance of UST. What is the stock market’sassessment of UST’s long-term growth rate?a. Hint: use the growing perpetuity formula, ????0 = ????1⁄(???????????? − ????), and solve for ???? to inferUST’s long-term growth rate. You will need to use the CAPM to find ????????????. (You may wantto do some online research of comparable tobacco companies to figure out theapproximate beta you should use for the CAPM.) Assume that ????1 = ????0 × (1 + ????).5) Comment on the financial performance of UST relative to other tobacco companies.6) Create three pro-forma income statements for fiscal year 1999 under each of the followingassumptions: (1) the $1B in debt was not issued; (2) the $1B in debt was issued and isinvestment grade; (3) the $1B in debt was issued and is below investment grade. For the lattertwo cases, can UST afford to make the interest payments based on the respective pro-formaincome statement?In answering this question, the CEO only wants a simplified pro-forma income statement thattakes the following form:SALESEBITINTEREST EXPENSEPRE-TAX NET INCOMETAXNET INCOME7) Calculate the change in UST’s value due to the tax shield benefits of the additional debt. For thisquestion, it would be useful to create a table containing the following information: value of thetax shield, value of the firm, value of the debt, value of the equity, number of sharesrepurchased, number of shares outstanding, and stock price. The table should cover the samethree cases as Question 6. Assume that the $1B in debt is used to repurchase $1B in shares.8) Comment on possible changes in value from the recapitalization due to other market frictionssuch as bankruptcy costs, information signaling, or other market frictions that you feel areapplicable.9) UST has paid uninterrupted dividends since 1912. Will the recapitalization hamper futuredividend payments? Consider, in particular, the dividend paid per share in 1999, with theassumption that UST will try to maintain a constant dividend payout ratio.The case report should be three to four pages in length (use the default spacing in Microsoft Word) withany useful tables or graphs attached. A one-paragraph executive summary should be included at thebeginning of the report. The report should be presented in a professional manner and read as a cohesivedocument so that the CEO can easily understand your main points. If you need to make anyassumptions, make them clear. Calculations should be relegated to an appendix. A report that consistsof a mess of calculations and numbers or a series of random paragraphs pasted together would not beacceptable.The case presentation should be about 20-30 minutes in length. Similar to the report, it should also bepresented cohesively and in a professional manner so that the CEO can easily understand your mainpoints. The presentation should be informative, concise, and should keep the listener engaged. Thepresenter should also be prepared to answer questions from the audience. A maximum of two peoplefrom your group should present your findings.