Case Scenario:
Intel Corporation, the computer chip giant has a big problem. Last November, the company began shipping nearly a million defective motherboards for personal computers. The related recall will cost the company hundreds of millions of dollars.
Further information about Intel www.intel.com can be found at their website. You should also refer to their current financial statements in the 1999 Annual Report to Shareholders.
www.intel.com/intel/annual99/f_summary.htm
Make the following assumption. The costs of the recall include notification of purchasers, remanufacture of the motherboards, shipping of replacement inventory, labor for parts replacement, "goodwill" payments to purchasers, and regulatory reporting on the recall. Intel is downplaying the total cost. However, the best internal estimate is that this error will cost Intel approximately $725 million and that this cost will be incurred in the second quarter of 2000.
You should assume that Intel will need to raise $675 million in additional cash to service this recall. You should assume that the current cash, accounts receivables, and current investments (all listed as current assets in the Balance Sheet) are committed to either current operations or other mandatory projects.
Recommend the optimal sources for this $675 million in a five page paper. Be specific on the amount to be raised from each source and give a justification for both your identification of each source and the amount you intend to raise from that source. Do not overlook the issue of debt/equity balancing.