Lehman Brothers Holdings, Inc.

In 2007, Lehman Brothers Holdings, Inc. became a casualty of a down economy by declaring bankruptcy. The federal government of the United States offered no intervention and permitted the company to fail. In 2008, however, the federal government intervened to prevent the fall of American International Group, Inc. (AIG). You will write a paper that presents your analysis of the situations and the influence of government intervention.

Compare and contrast the Lehman Brothers and AIG cases relative to the intervention (or lack thereof) of the federal government. Follow this guidance to complete the paper. ABOUT 1500 WORDS

1. Describe in detail the situation that led to the problem at Lehman Brothers. What was the exposure that put Lehman Brothers at risk?
2. What did Lehman Brothers seek from the regulators? Was there a precedent for the request? Explain.
3. What was the reasoning for the decision by the regulators and the government? Evaluate their reasoning.
4. What did the Federal government learn from the Lehman Brothers case that changed how it managed the AIG situation?
5. What would potentially have happened if the Federal government had not intervened in the AIG situation?
6. What is the role of government in inspiring and maintaining confidence in the market?

About 230 words each question.

a. Which tools in a capital budgeting model are the most critical to provide guidance to the managers on the acceptability of the project? Why?

b. An acquisition may be funded using all stock if the stock market is strong or all debt if the market interest rates are low. Suppose Super company uses all equity for an acquisition. Later, how could it make financial transactions that move it back to its chosen capital structure without necessarily affecting assets at that later date? Why is your proposed strategy effective?