You are attempting to structure a debt issue for Eaton Corporation, a manufacturer of automotive components. You have collected the following information on the market values of debt and equity for the past 10 years:

In addition, you have the following information on the changes in longterm interest rates, inflation rates, gross national product (GNP), and exchange rates over the same period.

Using this information,
a. Estimate the duration of this firm’s projects. How would you use this information in designing the debt issue?
b. How cyclical is this company? How would that affect your debt issue?
c. Estimate the sensitivity of firm value to exchange rates. How would you use this information in designing the debt issue?
d. How sensitive is firm value to inflation rates? How would you use this information in designing the debt issue?
e. What factors might lead you to override the results of this analysis?

Market Value of Equity (in milions) ($) Debt Year (in millions) ($) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1,824.9 2,260.6 2,389.6 1,960.8 2,226 1,875.9 2,009.7 2,589.3 3,210 3,962.7 436 632 795 655 836 755 795 833 649 1,053 2 0% (000000000 ti (-5.9 7 1 8 4 2 0 0 6 fla te 3 1 3 4 4 5 4 3 32 89 8 2 26 22826 255 6567752655 g te 1 9 9 9 998878 56789 1234 9999 00