1. a) General environment and investment needs The general environment that MCI faced at the time of this case concerns the telecommunications industry. MCI's main competitor was AT&T which essentially held a monopoly in the industry at the time. MCI was a young, emerging company always looking for money. In the early years, MCI sold millions of dollars of stock, exhausted what lines of credit it was able to obtain, and attracted private investors. They also clashed with the giant AT&T to gain full access to interconnection services. While all this was happening, MCI's stock price fell below $1, it had negative equity of $27.5 million, and an operating deficit of $87.3 million. MCI sold more common stock which allowed them to continue doing business. MCI underwent a significant turning point in 1976 when Execunet began producing considerable revenues. It was the first time MCI could start paying interest on its loans and make the first $100,000 in profit. Even during this small success, the FCC was able to limit who MCI could sell the Execunet service to, but the move did not discourage MCI in its growth efforts. In 1983, MCI was, as it seemed, on the road to success. The only obstacle was the lack of consistent investment capital, even though revenues totaled $1,073 million and net profit from operations was $170.8 million. Here's some other interesting information about MCI at this point. Compared to similar companies, with the exception of GTE, MCI still relies heavily on debt to finance its operations with a debt-to-GDP ratio of 55%. Additionally, MCI's revenues, net income, and assets were significantly lower than the rest of the telecommunications industry, which demonstrates the risk MCI was willing to take by investing in debt. Additionally, MCI stocks and bonds have always been in the “Not Rated” category. Their return on equity (32.4) shows that MCI was generating a profit with shareholders' money. The return on sales and assets also shows that MCI was becoming more efficient and was making more money with less investment. Of course, shareholders did not benefit from MCI's growing efficiency because no dividends were ever paid.