Communication Satellite Corp

In: Business and Management

Submitted By charles5448
Words 622
Pages 3
CASE SUMMARY NAME Charles Daugharthy
DATE March 16, 2016
CASE TITLE Communication Satellite Corporation (CSC) (1) BACKGROUND:
The Communication Satellite Act was created in 1962 to mandate a national policy of a worldwide communications satellite system that cooperated with other countries. Under this act, CSC, a privately held company would represent the United States. The FCC was able to regulate CSC and this was allowed due to the recently passed Communication Satellite Act. As this industry started to grow CSC requested their first rate increase which led to a FCC proceeding. First, the FCC needed to determine CSC’s required rate of return. During the proceeding, three testimonies were given, one by Dr. Brigham, Dr. Carleton, and Dr. Myers. Brigham argued for a 12% rate of return for CSC for 1964 to September 1974 and then a 15% rate increase beginning in October 1974. His calculation for rate of return was based by taking a sample of 602 industrial firms and 56 utility firms and taking an average using the discounted cash flow model. Carlton argued for a rate of return of 7% for ‘64-‘71, 8.33% for ‘72, and 9.42% for ‘75. Carlton’s calculation was based off of a comparison to AT&T and by creating a risk premium from treasury bonds. Myers suggested required rate of return of 12%. He based his from using the CAPM model. It is also important to note that CSC is an all equity firm, which means it won’t have any debt to lean against its equity.

(2) MAJOR PROBLEM(S):
FCC and CSC are puzzled on how to determine and accurate rate of return for a company that is the first of its kind. Also, there is no other real competition to compare it to.

(3) ALTERNATIVE COURSES OF ACTION:
One option is for the FCC to just pick one of the three testimonies to determine the correct rate of return. Another would be for the FCC to pick another way to…...

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