Iridium

Question 1

Name the top 5 risks regarding the Iridium case and put them in a probability- impact chart.

Answer 1

• Country Risk: Impact – Medium; Probability – Low
• Technological Risk: Impact – High; Probability – High
• Operating Risk: Impact – High; Probability Medium/High
• Economic Risk: Impact – High; Probability – Medium/…am Rand zu low
• Financing Risk: Impact – High; Probability – Medium

Question 2

Name possible Mitigation actions for the top 5 risks.

Answer 2

• Country Risk: Negotiate spectrum, rights and royalty agreements before development
• Technological Risk: Evaluation of the system technology by third parties, proven techniques only, first build prototype of the phones
• Economic Risk: Advertising campaigns, upfront long-term agreements, scenario/sensitivity analysis
• Financing Risk: Financial structure providing sufficient liquidity in case of cost overruns, long-term credit agreements, hedging, optimize equity ratio
• Operating Risk: Diversification of suppliers, long-term contracts, maintenance reserve account, warranties of suppliers and regional service partner

Question 3

Is 60% the optimal debt ratio for the project?

Answer 3

Pro: Motorola as guarantor, good sales forecast, high margins after launch → high CF´s
Contra: No reasonable certainty of revenues, high interest rates, no long-term agreements with customers, no warranties of suppliers, no certainty for high margins
→ The appropriate debt ratio depends on the actual reachability of the planned margins

Question 4

Name (benefits and limitations of) possible financial instruments for this project.

Answer 4

• Redeemable loan
• Revolver
• Repayable loan/ bullet loan
• Zero bonds
• bonds with warrants
  Because of the different creditworthiness in the three project stages (research, development, launch), there are different types of financial instruments needed.