When the Bell System was originally broken up, the old AT&T wassplit into a new
ID: 2662086 • Letter: W
Question
When the Bell System was originally broken up, the old AT&T wassplit into a new AT&T plus seven regional telephone companies.The specific reason for forcing the breakup was to increase thedegree of competition in the telephone industry.
In the court order that set the terms of the breakup, the capitalstructures of the surviving companies were specified, and muchattention was given to the increased competition telephonecompanies could expect in the future.
How do you think the optimal capital structure after the breakupcompared to the pre-breakup optimal capital structure? Using theconcepts learned in this objective, explain your position. (Do notresearch AT&T’s financial statements—there is noneed to do so).
Explanation / Answer
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